State-controlled companies and political risk: Evidence from the 2014 Brazilian election

The 2014 Brazilian election offers an opportunity to estimate the vulnerability of state-controlled companies to political risk. This paper proposes a method for studying the effect of an election on asset prices using only data on stock options. We apply this method to the 2014 Brazilian Presidential election. Results suggest that Petrobras, the Brazilian oil company, would be worth around 60%-65% more if the incumbent, Ms. Rousseff, had not been reelected. We also find that reelection had a negative impact on the stock market index, but state-controlled companies were more strongly affected.