ABSTRACT
This letter examines the impact of political uncertainty on stock prices by utilizing a quasi-experiment, i.e. Taiwan accidentally fires a missile towards mainland China. As this missile accident was entirely unforeseen by investors in the market, it provided a complete exogenous shock causing political uncertainty. We find that the political uncertainty caused by the events has significant negative effects on stock prices, especially for firms that have economic and geographical connections with Taiwan or are adjacent to Taiwan.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Code availability
Custom code; code used during the study are available from the corresponding author by request.
Some or all data, models, or code generated or used during the study are available from the corresponding author by request. (eg. Economic connection).
Authors’ contributions
Yitong Liu contributed significantly to data collection; Beibei Shi performed the data analyses and wrote the manuscript; Yunbiao Ma helped perform the analysis with constructive discussions.
Notes
1 Our results are robust to dropping this requirement.
2 The investment ratio is equal to Taiwan’s investment in each province divided by the total investment in mainland China during 1991–2015.
3 We also use CAR(0,+5) and CAR(0,+10) to run our regression, the conclusions are the same.
4 Due to space constraints, we only use Relation to measure economic connections and conduct relevant test in . The results keep the same when we use Investratio to measure economic connections.