The Role Of Political Factors On Determining Return Volatility : Evidence From Nonlinear Panel Data Analysis

Compare and contrast macro political risk with micro political risk. Discuss policies to combat their impacts on international business activities.

that affect the way businesses operate. How a political trend affect business depends on the type of industry that we are looking at; since some legislations are only directed to a certain type of industry. Economic forces can also cause a crisis in an organization. Some factors such as the unemployment rate, interest rate health care costs and others can definitely affect the economic stability of any organization. Top management must consider political and economic trends that affect the specific

The second and chief objective is to assess the impact of the crisis on the foreign exchange and stock markets. The report answers why the crisis adversely affected the Latin American market indices while the US market indices continued to rise.

6. In the context of international business, what is meant by the term "political risk"? In general, how do MNCs analyze this risk?

1. What is political risk and what are the most significant elements to be considered?

In early 2016, the U.S. stock market experienced its worst two week start in history, experiencing what is known as a correction, which is defined as a decline of at least 10% from recent highs. The major factor behind the correction was fear over the Chinese economy. China worried the world economy when its stock market was performing very poorly. In the summer of 2015, it took weeks for world markets to react to China’s market crashing. However, on January 4, 2016, the world felt the effects of China’s crash almost immediately. News from the private index of Chinese manufacturing data

The upcoming presidential election in the US has been making the stock market very volatile. The investors are scared that, if Donald Trump becomes the next president, it will affect the business investments, which in result may put the economy in a recession. His policies for deporting 11 million immigrants, building a wall and starting wars with other countries are some of the few reasons as to why many economists believe that the US economy would shrink by 1 trillion dollars over five years; also, they believe that his policies will destroy 4 million US jobs. This unpredictability of who is going to win the election is making the investors very cautious. This is referred to as the “fear gauge” on the Wall Street. The S&P 500, which is the

5. What means can managers use to assess political risk? What do you think is there lative effectiveness of these different methods? At the time you are reading this,what countries or areas do you feel have political risk sufficient to discourage you from doing business there?

Political stability is best defined as the durability and integrity of a current government regime. Many countries in contemporary society make the transition towards democracy with the intention to become more politically stable in order to conduct their affairs. This trend of democratization often does result in lesser tension between government and those being governed. However, political unrest is still frequently experienced in some countries that have successfully established a democratic regime, while the same is virtually nonexistent in others. For that reason, political instability and its causes is often a controversial topic generally discussed by social scientists and scholars. While many factors have influence on the likelihood

The stock markets have had an enjoyable ride higher since the election. The S&P 500 stock market index has advanced over 10% since then. The stocks markets have recently reached all-time highs and it is understandable that investors want to be more aggressive. Most of this recent market advance is based upon the belief that the new administration will pursue policies which are favorable to corporate America.

During this period, the volatility of stock markets, exchange rates, GDP growth and bond markets rise steeply. The main reason for those surge in the stock market is that volatility in the recession is due to effect on leverage. Therefore, most firms in the period accumulate more debt which in turn causes their stocks to be volatile. According to Schewert, he explores and calculates the leverage effect that does occur and tries to explain the 10% rise in uncertainty during the recession period.

Generally, businesses do not thrive under uncertainties. The political uncertainty brought about by the recent UK referendum was cited by business leaders as the top risk facing UK businesses [6]. These political risks negatively affect the general economy, in terms of both reductions in GDP growth and value of the UK pounds sterling.

At the global level, countries are influenced by: major population movements; rapid urbanization; environmental disasters; economic recessions and organized crime. Such events can manipulate the state of a country’s political economy and infrastructure, and the capacity to govern may also be affected (Shaw, et al, 2010, p.xx).

deterioration of investor sentiment with regard to emerging markets further exacerbated the crisis, (Raiser, M. 2016).

However; there is still hope for those business to change their tactics. Political risk can be managed and in doing so opens the door for newer business environments and markets. Business do not have to create new programs just to manage political risk, they are able to incorporate it into their “existing Enterprise Risk Management (ERM) systems, which would provide lower risk management costs, new revenue streams, better performance of existing businesses in emerging markets, and loss mitigation through improved business continuity planning and crisis management.” (Culp, Steve)