Early-Warning Indicators and Correlations for Political and Financial Risk
Client
Semester
The SIPA Capstone consulting team worked with the Eurasia Group’s comparative analytics group to provide green-field quantitative research on the relationship between key political events and financial market outcomes. Eurasia Group, a leading political risk consulting firm, wanted the team to explore uncharted areas not covered by commonly available datasets from international institutions, such as the World Bank, IMF, or OECD. After some discussion of options, the Eurasia Group and the Capstone team decided to focus on examining the relationship between key political transitions in emerging market countries and sovereign bond yields.
The team created an original dataset of elections, and leadership transitions in ministries of finance and central banks. The team chose first to examine central bank leadership transitions, since they appeared to be the most closely related to sovereign bond yields. During the midterm presentation, the Capstone team presented a variety of hypotheses resulting from the initial data analysis. Eurasia Group analysts provided feedback about the hypotheses they found most intriguing, guiding the Capstone team’s next stage of hypothesis testing. In the next phase, the team prepared models for testing the data, and tested the hypotheses using STATA. They also created a data package that included all of the data files, as well as a process document that closely detailed all of the assumptions and decisions made in the course of the data analysis. During the final presentation, the team presented both the findings from the hypothesis testing, as well as the data package.