Mongolia is a developing country in North East Asia with quickly growing country of 2.9 million populations and USD 10.2 billion GDP in 2012. Mongolia peacefully transitioned into a democratic society in 1990 and transformed from central planning economy to a market-oriented economy.
In the last decades, Mongolia has attracted foreign investors by huge amount of natural resources. In 2012, mining industry of Mongolia produced 20 percent of the Gross Domestic Production and 89 percent of it is export. Furthermore, 33 percent of total foreign direct investments are invested in geology, mining and petroleum industries. Also, 97 percent of total market capitalization of MSE is belonged to the mining companies in June, 2012. However, Mongolia’s political and investment environment doesn’t have much experience to deal with foreign investors on big projects. Mongolian government still has argued with mining companies.
On the other hand, political changes create impacts on stock market and investors make their investment decision according to political changes. As the particular situation of Mongolian stock market, this paper proposed to present Mongolia’s political impact on stock market returns and volatilities using daily MSE TOP20 index from February 9, 2001 to June 9, 2012. To examine stock returns and volatility, GARCH model by RATS programs is employed to investigate the results. We use congressional effect and a political change of Mongolia to examine political impact on Mongolian stock market. Congressional effect is presented by Mongolian parliament session. In 2009, Transition of ruling party is used by political changes of Mongolia. The preliminary results show that politics have a significant impact on stock market volatilities. Furthermore, the results illustrate that politics have negatively association with volatility of stock market returns in case of Mongolia. The results may help the decision making of investors’.
