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The Value of Institutions for Financial Markets: Evidence from Emerging Markets

Author/Editor: Akitoby, Bernardin | Stratmann, Thomas
Authorized for Distribution: February 1, 2009
Electronic Access: Free Full Text (PDF file size is 565KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper investigates the value of political institutions for financial markets, using panel data from emerging market countries. We test the hypothesis that changes in political institutions, such as improvements in democratic rights and increased government accountability, have a direct effect on sovereign interest rate spreads. We find that financial markets value institutions over and above the economic and fiscal outcomes these institutions shape. Democracy and accountability generally lower sovereign spreads, political risk tends to increase them, and financial markets tend to view election years negatively.
 
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Series: Working Paper No. 09/27
Subject(s): Capital markets | Financial sector | Political economy | Governance | Social policy | Emerging markets | Cross country analysis | Economic models
Author's keyword(s): sovereign risk | spreads | institutions | financial markets | emerging markets
 
English  
    Published:   February 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009027   Pages:   21
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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