Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting returns from investment could stem from a change in government, legislative bodies, other foreign policy makers or military control. Political risk is also known as "geopolitical risk," and becomes more of a factor as the time horizon of an investment gets longer.
Investors usually anticipate the situation in the economy and they already respond to declarations made by politicians. Therefore, financial markets seem to be sensitive to political changes, especially when the change in governing party is connected with essential changes in the concepts concerning economic development.
Such a situation took place in Poland at the end of 2015, as a result of the presidential and parliamentary elections. After these elections, the President and the parliament majority belonged to the same political option which was previously the opposition.
Here a question arises how the change in ruling party influences the situation of the Polish financial market. Therefore, the aim of our investigation is a comparison of the performance of financial markets, represented by selected open investment funds, and the Warsaw Stock Exchange indexes - WIG (equity) and TBSP (treasure bonds).
The analysis applyies single index and capital asset pricing models together with classical investment performance measures, and statistical interference.