Stock market is a formal capital market which has an effective role in mobilization of financial and capital assets. Stock market is also a proper center of collecting of saving and cash in private sector to finance in long term investment projects. The development of financial markets, especially the stock market and its impact on corporate financing has dramatic impact on economic growth. Major determinants of financial development, include legal Origin; institutions; openness policy; and political factors. Among these determinants, political factors are important sources that are originated from implemented policies and legal institutional frameworks, which are effective to the development of the financial system. In fact, the dynamic political economy shows that economic institutions and legal traditions are effective to promote economic growth and financial development.
This study, firstly explain the concept of political risk and its theoretical relationship between financial development and political risk, and then analyzes the affect of political risk on stock market development, especially the depth and breadth of the market in selected countries for the period of 1384-1391. The evaluation of the modified model Yarty (2008), factor analysis to combine variables to create depth and breadth of the stock market and stock market development indicators and the dynamic panel generalized method of moments based on (GMM) were analyzed.
The results have declared that reduction of political risk has an effective role on depth and breadth of the stock market. According to the results of this thesis in developed country, political risk had more impact on stock market development indicators in Developed countries rather than developing countries.
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