Title: Political uncertainty and market reaction: the case of Tunisian democratic transition

Authors: Linda Fakhfakh; Taher Hamza; Siwar Ellouz

Addresses: Faculty of Economics and Management (FSEG), University of Sfax, Airport Road Km4 P14, Sfax, Tunisia ' IHEC Carthage, University of Carthage, Victor Hugo Street, Archaeological Site of Carthage, 2016, Carthage-Presidency, Tunisia; Vallorem, University of Orléans, France ' Commercial High School, University of Sfax, Aerodrome Road km 04, B.P. 1081, Sfax 3018, Tunisia

Abstract: Political risk is an important factor that affects stock market reaction. Our paper investigates the impact of Tunisian democratic transition on both stock market and bank sector returns. We use the event study and BHAR methodologies and test the relation between political risk and stock returns in the short and long-term horizon. Our results show that: 1) In the short-term, the political risk associated with the 'revolution' event, affects negatively the stock market returns. This impact is positive in the long-term. 2) The '2014 elections' event positively affects stock market returns in the short-term and negatively over 18 months. 3) For the '2011 elections' event, the short-term positive effect seems to persist for long-term. 4) Lastly, in the context of democratic transition, political risk affects negatively the bank sector returns. This study proposes several managerial implications for investors as well as for market regulators.

Keywords: political risk; bank sector; revolution and democratic transition; event study; BHAR methodology.

DOI: 10.1504/AJFA.2018.093046

American Journal of Finance and Accounting, 2018 Vol.5 No.3, pp.293 - 321

Received: 22 Jan 2018
Accepted: 06 Feb 2018
Published online: 04 Jul 2018 *

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