Exploring the interwoven relationship: Property rights, financial freedom, government regulation, and stock market fluctuations in emerging economies - A novel system GMM perspective

Abstract

This study delves into the impact of formal institutions on stock market volatility within a selection of emerging economies. Specifically, it examines the role that formal institutions play in shaping this volatility. To accomplish our goal, we analyze panel data from 46 emerging nations spanning the years 2000–2019, utilizing system generalized method of moments (GMM), as well as random and fixed effect models for our estimations. The findings of this research validate the existence of a significant association between formal institutions and stock market volatility. Likewise, through dynamic panel estimation, we discover that formal institutions such as property rights, financial freedom, and government regulations have a notable negative effect on stock market volatility. Consequently, this study implies that formal institutions play a crucial role in reducing stock market volatility in emerging economies, fostering their development. The insights gained from this research encourage policymakers to view formal institutions as key influencers of stock market volatility. These results offer valuable guidance for emerging nations.

Keywords

• C01
• E02
• E44
• N20
• O17