Does Economic Freedom Affect Stock Returns? (Case study: Selected Countries of the Organization of the Islamic Conference)
محورهای موضوعی : Financial and Economic ModellingAram Sepehrivand 1 , Abolghasem Hashemipour 2 , Isa Taheri 3
1 - Economic, University of Isfahan, Boukan, Iran.
2 - University of Isfahan
3 - University of Chamran
کلید واژه: Organization of Islamic Cooperation (OIC), Economic Freedom, Stock Return,
چکیده مقاله :
Economic freedom or economic liberty is one of the instances of freedom which is a target intrinsically, and individuals and units make attempts to achieve. The liberalization of financial markets can have a different effect on economy. Several studies have indicated that economic liberalization has had a positive effect on developing economies by the reduction in capital expenditures, increase in profit-ability, and individuals’ investment. The present study aimed to investigate the effect of economic freedom on stock returns. The statistical population of this study is the selected countries of the Organization of the Islamic Conference (OIC) for the years 2001 to 2019, and is used in the statistical section of the Fraser Institute website and the World Bank website. In this study, the regression model of panel data was employed for data analysis. The research results show that the effect of the economic freedom variable is positive and significant on the stock price index and cash-on-cash return. At best, economic freedom can lead to increasing demand for stocks and, subsequently, raising the stock price index and cash-on-cash return. The government should provide a legal and regulatory framework to protect the rights of owners of assets and fair implementation of contracts, and facilitate access to sound money. It should also provide stable money and refrain from activities and interventions interfering in personal choices, exchanges and voluntary exchanges, and the free-dom to enter the competition in product and labour markets.
[1] Arestis, P., Demetriades, P., Financial Liberalization: the experience of Developing Countries, Eastern Economic Journal, 1999, 25(4), P.441-457.
[2] Batabyal, S., Killins, R., Economic policy uncertainty and stock market returns: Evidence from Canada, The Journal of Economic Asymmetries, 2021, 24, e00215. Doi:10.1016/j.jeca.2021.e00215.
[3] Bekaert, G., Harvey, C. R., Foreign speculators and emerging equity markets, The Journal of Finance, 2000, 55(2), 565-613. Doi: 10.1111/0022-1082.00220
[4] Bekaert, G., Harvey, C. R., Lundblad, C., Does financial liberalization spur growth?, Journal of Financial economics, 2005, 77(1), 3-55. Doi: 10.1016/j.jfineco.2004.05.007
[5] Blau, B. M., Brough, T. J., Thomas, D. W., Economic freedom and the stability of stock prices: A cross-country analysis. Journal of International Money and Finance, 2014, 41, 182-196. Doi: 10.1016/j.jimonfin.2013.12.001
[6] Bonfiglioli, A. How does financial liberalization affect economic growth?. IIES, 2005.
[7] Brana, S., Prat, S., The effects of global excess liquidity on emerging stock market returns: Evidence from a panel threshold model. Economic Modelling, 2016, 52, 26-34. Doi: 10.1016/j.econmod.2015.06.026
[8] Carlsson, F., Lundström, S., Economic freedom and growth: Decomposing the effects. Public choice, 2002, 112(3-4), 335-344. Doi: 10.1023/A:1019968525415
[9] Chowdhury, S., Mollik, A.T. and Akhter, M.S., Does predicted macroeconomic volatility influence stock market volatility? Evidence from the Bangladesh capital market (Doctoral dissertation, University of South Australia), 2006.
[10] Dewandaru, G., Rizvi, S.A.R., Bacha, O.I. and Masih, M., What factors explain stock market retardation in Islamic Countries?, Emerging Markets Review, 2014, 19, 106-127. Doi: 10.1016/j.ememar.2014.04.006
[11] Emenike Kalu, O., Okwuchukwu, O., Stock market return volatility and macroeconomic variables in Nigeria. International journal of empirical finance, 2014, 2(2), 75-82.
[12] Erdem, O., 2020. Freedom and stock market performance during Covid-19 outbreak. Finance Research Letters, 2020, 36, 101671. Doi: 10.1016/j.frl.2020.101671
[13] Guo, J., Co-movement of international copper prices, China's economic activity, and stock returns: Structural breaks and volatility dynamics. Global Finance Journal, 2018, 36, 62-77. Doi: 10.1016/j.gfj.2018.01.001
[14] Hou, T.C.T., Gao, S., The impact of economic freedom on financial analysts' earnings forecast: Evidence from the Asia-Pacific region. Finance Research Letters, 2021, 43, 102009. Doi: 10.1016/j.frl.2021.102009
[15] Karunanayake, I., Valadkhani, A. and O'Brien, M., Stock market and GDP growth volatility spillovers, 2012.
[16] Kedmey, D., Financial liberalization in emerging market economies: A catalyst for stock market volatility, 2005.
[17] Kim, D.H., Lin, S.C. and Suen, Y.B., Dynamic effects of trade openness on financial development. Economic Modelling, 2010, 27(1), 254-261. Doi: 10.1016/j.econmod.2009.09.005
[18] Kitchen, R.L., Finance for the developing countries. John Wiley & Sons Incorporated, 1986.
[19] Laopodis, N. T., Financial market liberalization and stock market efficiency: Evidence from the Athens Stock Exchange, Global Finance Journal, 2004, 15(2), 103-123. Doi: 10.1016/j.gfj.2004.06.001
[20] Liu, X., Sinclair, P., Does the linkage between stock market performance and eco-nomic growth vary across Greater China?. Applied Economics Letters, 2008, 15(7), 505-508. Doi: 10.1080/13504850500426277
[21] Maio, P., Philip, D., Macro variables and the components of stock returns. Journal of Empirical Finance, 2015, 33, 287-308. Doi: 10.1016/j.jempfin.2015.03.004
[22] Narayan, P. K., Narayan, S., Thuraisamy, K. S., Can institutions and macroeconomic factors predict stock returns in emerging markets?. Emerging Markets Review, 2014, 19, 77-95. Doi: 10.1016/j.ememar.2014.04.005
[23] Reboredo, J. C., Ugolini, A., Quantile dependence of oil price movements and stock returns. Energy economics, 2016, 54, 33-49. Doi: 10.1016/j.eneco.2015.11.015
[24] Sharifirad, H., Khosravipoor, N., Kheradyar, S. and Vatanparast, M., Investigating the Relationship between Political Uncertainty and Market Irregularities: With Emphasis on the Risky Information Environment. Advances in Mathematical Finance and Applications, 2021, Doi: 10.22034/amfa.2021.1927600.1581
[25] Smimou, K., Karabegovic, A., On the relationship between economic freedom and equity returns in the emerging markets: Evidence from the Middle East and North Africa (MENA) stock markets. Emerging Markets Review, 2010, 11(2), 119-151. Doi: 10.1016/j.ememar.2010.01.003
[26] Stocker, M. L., Equity returns and economic freedom. Cato J., 2005, 25, 583- 594.
[27] Stringham, E. P., Clark, J. R., Boettke, P. J., Are regulations the answer for emerging stock markets? Evidence from the Czech Republic and Poland. Quarterly Review of Economics and Finance, 2008, 48, 541-566. Doi: 10.1016/j.qref.2007.11.003
[28] Tag, M.N. and Degirmen, S., Economic freedom and foreign direct investment: Are they related?. Economic Analysis and Policy, 2022. Doi: 10.1016/j.eap.2021.12.020
[29] Tehrani, R., Ardakani, R.A., Effect of Business Groups Affiliation on Cash Holdings and Return on Equity. Advances in Mathematical Finance and Applications, 2017, 2(4), 1-9. Doi: 10.22034/amfa.2017.536262
[30] Yazdi, H., Ali, S., Impact of Speculative Bubble on Stock Returns in Companies Listed on Tehran Stock Exchange. Advances in Mathematical Finance and Applications, 2018, 3(4), 115-127. Doi: 10.22034/amfa.2019.553492.1089
[31] Xu, T., Economic freedom and bilateral direct investment. Economic Modelling, 2019, 78, 172-179. Doi: 10.1016/j.econmod.2018.09.017
[32] Zomorodian, G., Barzegar, L., Kazemi, S. and Poortalebi, M., Effect of Oil Price Volatility and Petroleum Bloomberg Index on Stock Market Returns of Tehran Stock Exchange Using EGARCH Model. Advances in Mathematical Finance and Applications, 2016, 1(2), 69-84. Doi: 10.22034/amfa.2016.527821