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    Political Uncertainty and Financial Market Uncertainty in an Australian context

    200613_200613aa.pdf (638.9Kb)
    Access Status
    Open access
    Authors
    Smales, Lee
    Date
    2014
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Smales, L. 2014. Political Uncertainty and Financial Market Uncertainty in an Australian context. Journal of International Financial Markets, Institutions and Money. 32: pp. 415-435.
    Source Title
    Journal of International Financial Markets Institutions and Money
    DOI
    10.1016/j.intfin.2014.07.002
    ISSN
    1042-4431
    School
    School of Economics and Finance
    Remarks

    NOTICE: this is the author’s version of a work that was accepted for publication in the Journal of International Financial Markets Institutions and Money. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in the Journal of International Financial Markets Institutions and Money, Vol.32, (2014). DOI: http://doi.org/10.1016/j.intfin.2014.07.002

    URI
    http://hdl.handle.net/20.500.11937/39867
    Collection
    • Curtin Research Publications
    Abstract

    This paper seeks to investigate the influence of political uncertainty, surrounding the Australian federal election cycle, on financial market uncertainty. Measures of political uncertainty are constructed and their relationship with market uncertainty, as measured by implied volatility, explored. Empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election induce higher (lower) levels of market uncertainty. An increasing likelihood of the incumbent party, whose economic policies are presumably well-known, winning the election, reduces market uncertainty. This relationship is stronger when political uncertainty is highest, when the business cycle contracting, and when the level of economic risk is high. Higher levels of political uncertainty tend to be associated with declining levels of outstanding debt, and lower issuance of long-term Government debt, driven by falling demand and higher yields.

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