Are financial markets resilient to political corruption scandals? Evidence from Latin America
Roby Arbe & José Manuel Feria Domínguez
What the paper says
The main aim of this research is to analyze the impact of political corruption scandals on six Latin American financial markets –Credit default Swaps (CDS) and Emerging Markets Bond Index (EMBI)– during the period 2017 to 2020. For this purpose, we carry out a standard short-term event study to analyze the sensitiveness of such financial markets in the face of corruption events in terms of both abnormal spread changes –ASC– and cumulative abnormal spread changes –CASCs–. We find that financial markets describe a resilient behavior to digest political corruption episodes and recover quickly from these shocks in the short-term. However, this resilience can be interpreted as a socio-cultural context that perpetuates an environment in which corruption can flourish without significant consequences for market stakeholders. Failure to react to political corruption events can undermine long-term economic and political sustainability, allowing corrupt governments to perpetuate themselves in power and anti-corruption reforms to go unimplemented. It is therefore crucial to consider strategies to strengthen transparency, ethical leadership, government accountability and a robust regulatory framework in order to promote true sustainability in Latin America region.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| 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.