POLITICAL INSTABILITY AND FINANCIAL MARKETS: A CONCEPTUAL FRAMEWORK FOR COMPARATIVE ANALYSIS

Abstract

Political instability is a significant driver of financial market volatility, influencing investor behavior, market confidence, and economic outcomes. Drawing on data from Nigeria's political landscape, including elections, civil unrest, and policy shifts. A causal research design was employed to investigate the impact of political instability on financial markets, mediated through market linkage mechanisms (MLIM). Secondary data were collected from reliable sources, the research analyze the data using Structural Equation Modeling (SEM). Findings highlights the pivotal role of Mechanism Linking Instability to Market (MLIM) in connecting political instability to financial markets. While MLIM and FM constructs exhibit strong reliability, the Political Instability (PI) construct lacks explanatory strength. This suggests that political instability primarily affects financial markets through intermediate mechanisms like MLIM. And recommended that, Policymakers should focus on stabilizing MLIM factors (e.g., institutional frameworks and investor confidence) to mitigate financial market disruptions. And robust monitoring tools should be developed for FM1 and FM2, as they are the most responsive to instability.