Effect of the Political Risk on Capital Asset Valuation in Financial Markets: The Case of Turkey

Abstract

Recent political events and the subsequent movements in financial markets both in the developing and the developed countries raise the instincts regarding the interaction of political risks and financial markets and increase the importance of understanding the behavior of financial markets against political risks. Therefore the purpose of this study is to explain the impact of political risks on the returns of securities traded on capital markets in Turkey in the framework of Capital Asset Pricing Model (CAPM). The relation between the monthly returns of 47 companies' assets being traded on Borsa Istanbul and the political risks in Turkey between the years of 1997 and 2013 is examined in the study. Results of the analysis held by two-step regression method represent that there exists a positive and linear relation between beta and expected return. On the other hand, it is found that 4 out of 12 political risk factors, in other words

Relationship between Political and Financial Risks in Turkey: Evidence from Fourier Cointegration Analysis Regarding Institutional Structures

“…However, the analysis for Argentina found no relationships between the degree of political risk and the stock prices. Toraman and Tuncay (2017) investigated the effects of political risks on the returns of securities traded in Turkey's capital markets. The study examined the relationship between monthly asset returns of 47 companies traded on the BIST and the political risks in Turkey from 1997 to 2013.…”

Financial System Performance in European Union Countries: Do Country’s Governance Indicators Matter?

“…An environment characterized by political instability or uncertain socio-political conditions determines a strong negative impact on stock market index returns (Asteriou & Sarantidis, 2016;Toraman & Tuncay, 2017;Hartwell, 2018), on stocks price-to-earnings ratio (Kapolková & Tolstova, 2015) and increases stock market participants' risk perception (Dai & Zhang, 2019). The study of Boadi and Amegbe (2017) gathers various dimensions of governance quality such as voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and control of corruption and uncovers they significantly affect international stock market performance.…”