مقاله انگلیسی رایگان در مورد عوامل مهم کارکرد و جریان بازار نوظهور – الزویر 2022

Abstract

     Investors commonly rely on macroeconomic variables to drive capital allocation decisions. But other institutional factors may alter investor returns as well, particularly in emerging market countries. Given these concerns, this paper examines the effects of institutional factors—specifically democracy, transparency and corruption—on emerging market equity returns and flows. We find that institutional quality impacts stock market returns and flows in emerging markets where corruption, transparency, and democracy levels are below average. We also find that government-owned or controlled industries are positively impacted by a deterioration in the corruption and democracy indexes, while highly concentrated sectors, like the financial industry, are negatively impacted by improving transparency.

Introduction

     Investors often rely on macroeconomic factors (e.g., inflation, GDP growth) to drive allocation decisions (Ahlquist, 2006). But a burgeoning body of research suggests that investors should couple macroeconomic factors with market-specific institutional factors such as corruption when deciding where to allocate their capital across international markets. Institutional quality varies significantly across emerging market (EM) countries and within EM countries over time presenting an opportunity to explore the impact of institutional quality on EM stock market performance. As such, this paper examines if, and when, institutional quality impacts investor equity (i.e., stocks) returns and flows in emerging markets. Additionally, we assess if institutional quality has differential effects on investor equity returns in specific EM industries.

     The three institutional factors we focus on are: democracy, transparency, and corruption. The quality of these factors can affect market performance because they impact the reliability of the data in which investors rely upon to allocate capital. In addition, institutional quality can influence the cost of doing business, and affect the stability of markets.1 But how do each of these three institutional factors affect stock market performance in emerging markets.

Conclusions

     This paper examines the effect that varying levels of institutional quality regarding corruption, transparency, and democracy has on annual equity returns, flows, and industry returns in EM countries over an 18-year period. We find that an increasing level of transparency has a positive, significant impact on average annual market returns in each of the below median group of countries relative to corruption, transparency, and democracy. This result suggests that for emerging market countries where corruption, transparency, or democracy are poor, policies that improve transparency will have a positive impact on market returns.

     In addition, changes in institutional indices impact several EM industry returns. Specifically, we see higher democracy scores result in lower returns in the utility, oil and gas, and technology industries, while higher scores for corruption result in lower returns for the consumer services and utility industries. The commonality between these industries is that they have a high level of government ownership or management, particularly in emerging market countries, or are highly concentrated industries. Finally, we see higher corruption scores result in lower net equity flows, a result that may be driven by FDI into China. Less surprising is the finding that net equity flows are positively impacted by an increase in the democracy index in countries with below median democracy and transparency scores.