A COMPARATIVE ANALYSIS OF RESPONSE OF INTERNATIONAL CAPITAL MARKETS TO POLITICAL UPHEAVAL
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One explanation for the apparent excessive Volatility of stock prices, not justified by fundamentals, could be that prices sometimes react in anticipation ofshocks which do not actually materialize. The most dramatic examples ofsuch shocks arefleeting political upheavals such as the abortile coup ofAugust 1991 in the Soviet Union. Our analysis of the responses of several stock markets to this coup suggests that price fluctuations induced by fleeting political events can partially explain the excessive volatility of stock markets. Our finding of major differences in adjustment processes between d(fferent stock markets has implications.for international capital market integration.
Abstract
One explanation for the apparent excessive Volatility of stock prices, not justified by fundamentals, could be that prices sometimes react in anticipation ofshocks which do not actually materialize. The most dramatic examples ofsuch shocks arefleeting political upheavals such as the abortile coup ofAugust 1991 in the Soviet Union. Our analysis of the responses of several stock markets to this coup suggests that price fluctuations induced by fleeting political events can partially explain the excessive volatility of stock markets. Our finding of major differences in adjustment processes between d(fferent stock markets has implications.for international capital market integration.