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Political uncertainty and cross-border equity allocation decisions: international evidence

Kwabi, Frank; Boateng, Agyenim; Wonu, Chizindu; Kariuki, Charles; Du, Anna


Frank Kwabi

Agyenim Boateng

Chizindu Wonu

Charles Kariuki


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.

Journal Article Type Article
Acceptance Date Feb 1, 2023
Online Publication Date Feb 4, 2023
Publication Date 2023-05
Deposit Date Feb 4, 2023
Publicly Available Date Aug 5, 2024
Print ISSN 1057-5219
Electronic ISSN 1873-8079
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 87
Article Number 102562
Keywords Political uncertainty, Election uncertainty, Foreign equity portfolio flow, Institutional quality