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When Markets Are Hostage to Political Flux: Pastor and Veronesi

Nov. 10 (Bloomberg) -- Politics are dominating financial markets. Day after day, prices react to news about what governments around the world have done or might do.

The markets were jubilant two weeks ago when European politicians announced a deal cutting Greece’s debt in half. U.S. stocks soared 3.4 percent on Oct. 27, while French and German stocks gained more than 5 percent. Early last week, equities gave back those gains when Greece’s prime minister, George Papandreou, announced his intention to hold a referendum on the bailout. When other Greek politicians voiced their opposition to that initiative, markets rejoiced again.