{"title":"The impact of democracy on liquidity and information asymmetry for NYSE cross‐listed stocks","authors":"Jang‐Chul Kim, Qing Su, Teressa Elliott","doi":"10.1111/irfi.12469","DOIUrl":null,"url":null,"abstract":"We investigate the empirical relationship between a country's democracy level, measured using the Democracy Index's five categories (electoral process and pluralism, the functioning of government, political participation, political culture, and civil liberties), and market liquidity for non‐US stocks listed on the New York Stock Exchange (NYSE) from 2014 to 2019. Our analysis shows that non‐US stocks from countries with stronger democratic institutions have narrower spreads, a higher market quality index, smaller price impacts of trades, and lower probabilities of information‐based trading. We also find a significant correlation between changes in our liquidity measures and variations in a country's overall democracy level over time. Our results suggest that improving a country's level of democracy can enhance the market liquidity and quality of non‐US stocks, thus benefiting investors and promoting the overall stability and efficiency of financial markets.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":"22 1","pages":""},"PeriodicalIF":1.8000,"publicationDate":"2024-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Finance","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1111/irfi.12469","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We investigate the empirical relationship between a country's democracy level, measured using the Democracy Index's five categories (electoral process and pluralism, the functioning of government, political participation, political culture, and civil liberties), and market liquidity for non‐US stocks listed on the New York Stock Exchange (NYSE) from 2014 to 2019. Our analysis shows that non‐US stocks from countries with stronger democratic institutions have narrower spreads, a higher market quality index, smaller price impacts of trades, and lower probabilities of information‐based trading. We also find a significant correlation between changes in our liquidity measures and variations in a country's overall democracy level over time. Our results suggest that improving a country's level of democracy can enhance the market liquidity and quality of non‐US stocks, thus benefiting investors and promoting the overall stability and efficiency of financial markets.
期刊介绍：
The International Review of Finance (IRF) publishes high-quality research on all aspects of financial economics, including traditional areas such as asset pricing, corporate finance, market microstructure, financial intermediation and regulation, financial econometrics, financial engineering and risk management, as well as new areas such as markets and institutions of emerging market economies, especially those in the Asia-Pacific region. In addition, the Letters Section in IRF is a premium outlet of letter-length research in all fields of finance. The length of the articles in the Letters Section is limited to a maximum of eight journal pages.
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