Research on political risk tends to elucidate that political news affects nancial markets. Especially stock markets respond to new information regarding political decisions that may affect domestic and foreign policy. In this study, we examined the effect of good and bad political news on returns and volatility for this We employ the EGARCH model proposed by Engle and Victor (1991) as it allows good and bad news to have a different impact on volatility.Our result shows that good news has positive impact on the stock returns and also decreased the volatility.On the other hand, bad political news has negative influence on the returns (decrease the returns) and increase the volatility (positive effect)."

In this paper we propose a framework for predicting market returns and volatility using changes in the country's political risk. We identify the appropriate lag to calculate changes over, and show how the changes should be included in mean and volatility equations. The appropriate level of aggregation for the political risk variable is also examined. We analyse 47 emerging and 21 developed markets. We find political risk predictive power primarily for volatility, when looking at emerging markets. Our paper recommends use of three political risk components, which suitably capture important dimensions of the political environment.

Little work has been done to characterize the empirical effects of political events on financial markets. In this paper we attempt to measure the impact of political risk on asset prices, focusing on the Hong Kong equity market. Hong Kong serves as the ideal case study, for two reasons: the political situation is fluid, unpredictable, and characterized by the occurrence of definitive events, and the market movements are volatile, partially reflecting the political event risk. We focus on the 1989-1993 period, during which political issues such as the question of Hong Kong s democracy after 1997, China s most-favored-nation trade status, and China s human rights development and political reform movement have all contributed to Hong Kong s stock price movements. Modeling market volatility using a jump-diffusion process finds that the volatility of the benchmark Hang Seng Index is driven by a highly persistent component, punctuated by large jumps which are highly related to political events. These results suggest that the Hong Kong market is affected by both economic and political factors which impact future profitability and investor confidence.

We investigate how corporate stock returns respond to geopolitical risk in the case of South Korea, which has experienced large and unpredictable geopolitical swings that originate from North Korea. To do so, a monthly index of geopolitical risk from North Korea (the GPRNK index) is constructed using automated keyword searches in South Korean media. The GPRNK index, designed to capture both upside and downside risk, corroborates that geopolitical risk sharply increases with the occurrence of nuclear tests, missile launches, or military confrontations, and decreases significantly around the times of summit meetings or multilateral talks. Using firm-level data, we find that heightened geopolitical risk reduces stock returns, and that the reductions in stock returns are greater especially for large firms, firms with a higher share of domestic investors, and for firms with a higher ratio of fixed assets to total assets. These results suggest that international portfolio diversification and investment irreversibility are important channels through which geopolitical risk affects stock returns.

The implied volatility of any stock market can be used in order to measure the future expectations of risk and returns. The purpose of this paper is to measure the levels of risk in the Greek stock market for the brief time interval of 02/02/2015-03/31/2015. The reason of choosing this time interval to be examined is that during these dates many political decisions have been made, and as a consequence the uncertainty in Greece was higher with a significant impact in the Eurozone. Thus, it is of great importance to examine the implied volatility of the Greek stock market and measure its' relevance with the implied volatility of the German stock market. The reason that these stock markets have been selected relies on the fact that the German stock market represents the most stable economy of the Eurozone, and on the other hand, the Greek stock market represents the most unstable economy inside the Eurozone. Under these circumstances, the implied volatilities of these stock markets are going to be modeled in order to detect the relationship between them.