VOLATILITY SPILLOVER BETWEEN LEBANESE POLITICAL SHOCKS AND FINANCIAL MARKET RETURNS

This paper examines the impact of Lebanese political news announcements on Beirut Stock Exchange (BSE) returns and volatility from 2005 to 2014. Using a sample of (294) Lebanese political news, the results from GARCH, EGARCH and ARCH models reveal significant impacts of favorable and unfavorable political news on BSE returns. Favorable political news has a positive impact while unfavorable political news has a negative impact. This research also confirms that both favorable and unfavorable political news announcements increase BSE volatility. Additional analysis shows that unfavorable political news has greater impacts on BSE volatility and returns than favorable political news. It seems that BSE investors are more sensitive to unfavorable political news which leads them to avoid the regret feeling by following the market tendency. The findings of this study show that the Lebanese banking sector plays a positive role by mitigating the negative impact of bad political news.