Political instability and capital flight: An application of event study methodology

Abstract

AbstractThe relationship between capital flight and political instability is investigated by using the event study methodology, which is widely used in the finance literature. The advantage of using this method is that by isolating specific instances of political instability (defined as events), one can examine the relationship more closely. An index of political instability is calculated using data on intranation political developments from the Conflict and Peace Data Bank (COPDAB). For our sample, we get mixed results, probably because the “event” could not be defined very precisely due to the volatile nature of the political index.