Hedges of the Second Republic: firms, equity investors and political uncertainty in a nascent democracy, 1930–1936
Stefano Battilossi & Stefan Houpt
What the paper says
We study how Spanish equity investors assessed firms’ exposure to political risk during the regime change of the 1930s. We show that shifts in political uncertainty regularly predicted a general deterioration of future investment opportunities in the stock market. However, we also find that firms differed in their sensitivity to uncertainty, reflecting important differences in their perceived exposures to political risk. The negative impact of uncertainty was significantly milder for firms with political connections to republican parties. The price of some stocks increased in periods of heightened uncertainty, thus allowing investors to hedge against reinvestment risk. In the case of firms that became targets of hostile political actions, we observe that investors frequently adjusted their assessment of individual stocks to changes in firm-specific political circumstances. Over the whole period of the Second Republic, investors’ systematic preference for safer equity hedges led to a continuous decline in the price of stocks perceived as more exposed to political risk.
3 citations
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.32 × 0.4 = 0.13 |
| M · momentum | 0.57 × 0.15 = 0.09 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.