Political Uncertainty and Asset Prices

Recent studies in the interaction between political uncertainty and financial markets focus on how political uncertainty affects stock prices. Pastor and Veronesi (2013) argues two channels: discount rate / cash flows: Models of political risk predict that increases in political uncertainty cause stock prices to fall, by changing investor discount rate and firm's future cash flows. Some empirical papers have substantiated the cash flow channels for example, Acemoglu (2018) used the case of Arab spring political connectedness will affect the power of seeking political rents, thus asset prices. By using A-H dual listed stocks as samples, I aim to study the difference in how these two stock markets respond to the political events.