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Institutional determinants of emerging market returns and flows

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  • Sonenshine, Ralph
  • Erickson, Bradley O.

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.

Suggested Citation

  • Sonenshine, Ralph & Erickson, Bradley O., 2022. "Institutional determinants of emerging market returns and flows," Emerging Markets Review, Elsevier, vol. 51(PB).
    • Handle: RePEc:eee:ememar:v:51:y:2022:i:pb:s156601412200005x
    DOI: 10.1016/j.ememar.2022.100888
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    References listed on IDEAS

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    More about this item

    Keywords

    Returns; Corruption; Transparency; Democracy; Emerging markets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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