The Impact of Political Instability on Stock Markets in BRICS Countries and Türkiye

Abstract

Introduction: Political stability is an essential source of stock market dynamics. Investors are confident about countries that have higher political stability. Political stability in an economy enables investors to develop their ability to predict the future and thus to tend towards longer-term and permanent economic and financial activities.

Purpose: The study aimed to investigate the impact of political instability in BRICS countries and Türkiye on their stock market volatilities.

Methodology: The study analysed the univariate exponential generalised autoregressive conditional heteroskedasticity (EGARCH) Model. The model employed the credit default swap (CDS) 5-year USD Bond data of the BRICS countries and Türkiye to represent political instability. The daily stock exchange index return data from 1 January 2015 to 15 January 2023 was used for model estimation.

Findings: The results of the EGARCH model indicate that political instability is a crucial factor in stock market volatility. The coefficients suggest that when CDS increases in BRICS countries and Türkiye, the volatility of stock returns also increases. The analysis shows that the impact of political instability on the stock market of BRICS countries and Türkiye is not uniform. However, the significant effect of political instability on volatility is higher for Türkiye than for BRICS countries. This indicates that investors perceive the political risk of Türkiye to be greater than that of BRICS countries when investing in the stock market of Türkiye.

Citation

Ustalar, S.A. and Şanlisoy, S. (2024), "The Impact of Political Instability on Stock Markets in BRICS Countries and Türkiye", Taneja, S., Kumar, P., Reepu, Balusamy, B., Sood, K. and Grima, S. (Ed.) Sustainability Development through Green Economics (Contemporary Studies in Economic and Financial Analysis, Vol. 114), Emerald Publishing Limited, Leeds, pp. 269-288. https://doi.org/10.1108/S1569-375920240000114016