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An Examination of the Effects of Corruption on Financial Market Volatility

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  • Aimao Zhang

    (Aimao Zhang, Georgia Southern University, Statesboro, Georgia, USA. E-mail: aimao@georgiasouthern.edu)

Abstract

Corruption has a profound impact on many aspects of a society, such as, productivity growth, foreign direct investment or income equality. We propose that corruption also has an impact on stability of financial markets. In this study, we demonstrate a strong correlation between corruption and financial market stability and compare corruption with other social and economic factors in terms of their correlations with financial market stability. The data used in this study include financial data of 29 countries’ index funds for the last five years (2002–07), the Corruption Perception Index 2007 and the Index of Economic Freedom 2007. JEL Classification: D73, G15, G32

Suggested Citation

  • Aimao Zhang, 2012. "An Examination of the Effects of Corruption on Financial Market Volatility," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 11(3), pages 301-322, December.
    • Handle: RePEc:sae:emffin:v:11:y:2012:i:3:p:301-322
    DOI: 10.1177/0972652712466501
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    References listed on IDEAS

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    1. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    2. Imène Guetat, 2006. "The effects of corruption on growth performance of the mena countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(2), pages 208-221, June.
    3. Kristopher Gerardi & Harvey S. Rosen & Paul S. Willen, 2006. "Do households benefit from financial deregulation and innovation?: the case of the mortgage market," Public Policy Discussion Paper 06-6, Federal Reserve Bank of Boston.
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    Cited by:

    1. Lau, Chi Keung Marco & Demir, Ender & Bilgin, Mehmet Huseyin, 2013. "Experience-based corporate corruption and stock market volatility: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 17(C), pages 1-13.

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    More about this item

    Keywords

    Corruption; volatility; stock market; Corruption Perception Index;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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