Non-Parametric Quantile Dependencies Between Volatility Discontinuities and Political Risk

Abstract

In this paper, we investigate the non-parametric relation between political risk and Mexican financial markets. We focus on stock, foreign exchange, financial institutions bond, corporate bond and sovereign bond markets. We apply a quantile correlation approach between five categories of the most used political risk indicators and volatility discontinuities (jumps) in a pairwise comparison. Our findings suggest that dependencies of political risk factors with stock and foreign exchange markets appear to be generally positive, while those with financial institutions and corporate bonds are adverse.

Keywords: Mexico, Political Risk, Mexican Financial Markets