Valuing Composite Political Risk : Towards a Market Based Indicator

This paper is motivated by the need to return to a basic political risk indicator and risk valuation model in light of the recent global turbulence in economies and financial markets. A lesson to be learned from the crises of 2008 is that an additional analytical tool utilising country and global stock market indexed data would be useful to provide a broad picture of composite political risk in each country on a daily running basis. It is argued that unsystematic risk is an indicator of country specific factors that relate to political, social, legal and cultural effects. When adjusted for degrees of systemic informational efficiency, this uncomplicated analytical tool could be used, as an adjunct to other indicators, by government and industry risk analysts endeavouring to pre-empt market and political risk problems