When Financial Markets Misread Politics
When Turkey’s ruling AKP regained a parliamentary majority in the country’s general election on November 1, financial markets cheered. The same short-term focus and herd behavior that often lead financial markets to neglect more significant economic fundamentals can also distort markets’ judgment of countries' political prospects.
CAMBRIDGE – When Turkey’s Justice and Development Party (AKP) defied pundits and pollsters by regaining a parliamentary majority in the country’s general election on November 1, financial markets cheered. The next day, the Istanbul stock exchange rose by more than 5%, and the Turkish lira rallied.