Political risk relates to both the ability and the willingness of governments to repay debts. We find that bond prices only slowly adapt to changes in political risk. The expected bond returns for countries whose political risk ratings have improved are higher than those for countries whose...

During the last few decades, the political instability has increased to a great extent in Pakistan, which may intensify the investors’ fear and affects the decisions of investment in the long run. Therefore, it is essential to explore how the stock market reacts to political stability and to...