Did China's anti-corruption campaign affect the risk premium on stocks of global luxury goods firms?

Dr. Thomas Nitschka

Issue
2018-09

Pages
58

JEL classification
F68, G15, G18

Keywords
Asset pricing, financial markets, political risk

Year
2018

Media reports suggest that the recent Chinese anti-corruption campaign adversely influenced business prospects of globally operating luxury goods firms. This paper empirically tests this hypothesis. This paper finds that risk-adjusted returns on stock portfolios consisting of luxury goods firms with high exposure to China shifted persistently downward around the launch of the anti-corruption campaign. Risk-adjusted returns tend to co-vary with the intensity of the campaign. The evidence suggests that the Chinese anti-corruption campaign constituted negative cash-flow news about the affected global luxury goods firms. These findings neither pertain to luxury goods firms with low exposure to China nor to firms from other industries.