A groundbreaking study from the Bangko Sentral ng Pilipinas (BSP) has uncovered a direct link between specific political crises and significant swings in the Philippine stock market, offering new insights into how instability impacts financial markets in emerging economies.
Researchers Tristan Canare, Carl Francis Maliwat, and Elisa Nebres analyzed decades of data in a December 2025 discussion paper, finding that while general political instability doesn't always rattle markets, certain high-profile events consistently trigger measurable reactions. The study focused on the Philippines specifically to examine how political shocks affect countries with relatively shallow capital markets—an area previously under-researched.
"Political instability brings about risk and uncertainty, which in turn, affect the stock market in multiple ways," the researchers noted. "Risk and uncertainty also increase the risk premium on the discount rate of investors, which can lead to lower stock prices."
The timing of the research proved particularly relevant as it coincided with a major corruption scandal involving state-funded flood control projects. The controversy, which implicated lawmakers and Cabinet members, paralyzed government spending and triggered a confidence shock that sent local stock prices tumbling.
Among the most significant findings: the conclusion of former President Joseph Estrada's impeachment trial produced the largest negative cumulative abnormal returns among all cases studied. This event coincided with both a dramatic leadership change and massive street protests that created substantial market uncertainty.
Other political events showed varying impacts:
- The impeachment of former Chief Justice Renato Corona also coincided with negative returns, though the effect was smaller since it didn't signal a major policy shift
- Coup attempts and plots consistently weighed on markets by increasing uncertainty, even when unsuccessful
- The 2003 Oakwood mutiny dampened market sentiment as it represented the first major military uprising since 1989
- Events surrounding "Edsa III" protests were similarly associated with negative abnormal returns
The researchers employed three distinct approaches to measure political instability: indexes derived from Google Trends search data, indexes built from keyword searches in news articles, and comprehensive lists of political events. This multi-method approach provided robust evidence that specific political crises—rather than general instability—drive market reactions.
This research arrives at a crucial time for Philippine financial markets, offering policymakers and investors valuable tools for understanding how political developments might influence economic stability and investment decisions in emerging economies.