Political uncertainty and cross-border equity portfolio allocation decisions: International evidence |
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| Affiliation: | 1. School of Accounting, Finance and Economics, De Montfort University, LE1 9BH, UK;2. Department of Accounting and Finance, Edinburgh Napier University, UK;1. Departament d’Econometria, Estadística i Economia Aplicada, Universitat de Barcelona (UB), Spain;2. School of Finance, Economics and Government, Universidad EAFIT, Medellín, Colombia;3. Faculty of Economics and Business, Universitat Oberta de Catalunya, Spain;1. Audencia Business School, Research Center: Markets Technology and Society, 8 Route de la Joneliere, 44312 Cedex 3, Nantes, France;2. Heriot Watt University, Accounting, Economics and Finance SEEC, CFI, Edinburgh, Scotland EH14 4AS, UK;1. Department of Accounting and Finance, Nottingham Business School, Nottingham Trent University, Nottingham, UK;2. Centre for Digital Finance, Department of Banking & Finance, Southampton Business School, University of Southampton, Southampton, UK;1. International University, Quarter 6, Linh Trung Ward, Thu Duc City, Ho Chi Minh City, Viet Nam;2. Vietnam National University, Ho Chi Minh City, Viet Nam;3. Excelia Business School, 102 Rue de Coureilles - Les Minimes, 17024 La Rochelle, France;4. EDHEC Business School, 24 avenue Gustave Delory, CS 50411, 59057 Roubaix Cedex 1, Lille, France;1. School of Business, Pusan National University, Busan 46241, Republic of Korea;2. College of Social Science, Hansung University, Seoul 02876, Republic of Korea;3. College of Business Administration, University of Seoul, Seoul 02504, Republic of Korea |
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| Abstract: | Political risk models highlight that political uncertainty matters for corporate investment decisions. However, how political uncertainty matters for investment allocation decisions is relatively under-explored. In this study, we examine the impact of political uncertainty associated with national elections on foreign equity portfolio in 48 countries. Our results indicate that political uncertainty reduces international equity allocations to the host country and such reduction appears more pronounced in the election year. Further analysis shows that the interaction between political uncertainty and institutional quality has a positive and significant effect on international equity portfolio flow, suggesting that the value of institutional quality outweighs the negative effects of political uncertainty. Lastly, we find equity home bias to be negative and significant; however, the interaction between political uncertainty and equity home bias appears insignificant. |
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