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Political landscape and liquidity of non-U.S. stocks from emerging markets

Author

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  • Jang-Chul Kim

    (Northern Kentucky University)

  • Qing Su

    (Northern Kentucky University)

Abstract

We investigate the empirical relation between country governance quality and stock market liquidity, as well as information asymmetry, using a sample of non-U.S. stocks from 17 emerging markets listed on the NYSE between 2004 and 2019. We find that non-U.S. stocks from emerging markets with higher democracy quality tend to have narrower spreads and larger depth, suggesting improved liquidity. Higher autocracy levels, on the other hand, are associated with wider spreads and lower depth, indicating poorer liquidity. Additionally, stronger democracy and polity qualities are linked to reduced price impact, while heightened autocracy levels are associated with increased price impact and a higher probability of informed trading. Moreover, we show that changes in our liquidity and information asymmetry measures significantly relate to changes in the country governance index over time. Our results remain remarkably robust across regions and when using different measures of liquidity and information-based trading.

Suggested Citation

  • Jang-Chul Kim & Qing Su, 2024. "Political landscape and liquidity of non-U.S. stocks from emerging markets," Review of Quantitative Finance and Accounting, Springer, vol. 63(2), pages 579-597, August.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:2:d:10.1007_s11156-024-01268-2
    DOI: 10.1007/s11156-024-01268-2
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    More about this item

    Keywords

    Governance; Democracy; Autocracy; Polity; Liquidity; Information-based trading;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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