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Business & Economics

POLITICAL UNCERTAINTY AND VOLATILITY ON THE FINANCIAL MARKETS-THE CASE OF ROMANIA
Diane Paula Corina Vancea, Kamer Ainur Aivaz, Cristina Duhnea

ABSTRACT. The article aims at investigating the level of the volatility in two important segments of the financial market (capital market and foreign exchange market) by obtaining the volatility estimators with the help of conditional heteroskedastic econometric models: ARCH, GARCH, TGARCH and EGARCH and at determining how the Romanian financial markets react to political uncertainty. We conducted an empirical, quantitative study focused on the Romanian financial market (2005-2017) using as relevant indicators the BET index and the leu/euro exchange rate and a qualitative analysis to determine the most important political events which marked the Romanian economy in last 12 years. The research results revealed that there is a clear influence of the political events on financial markets but the foreign exchange market and the capital market react differently to the political situation: while on the first the incidence of events is much faster, on the second the reaction is slower but deeper  .

KEYWORDS: Romanian financial markets, volatility, political events.

JEL classification: C10, G14, G10.