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How Does Government Policy Affect Equity Risk Premium?

Author

Listed:
  • Nahil Boussiga

    (Department of Management, University of Carthage)

  • Ezzeddine Abaoub

    (University of Tunis El Manar)

Abstract

This study examines the effect of country-level governance quality on equity risk premium using a panel dataset of 122 developed, emerging and developing economies over the period 2000-2012. Governance quality is measured by worldwide governance indicators. We use other determinants of equity risk premium as independent variables in the model which are inflation, consumption preferences, economic risk, international financial integration and binary variable 'Crisis'. Our results show that better governance quality translates into lower equity risk premium. This paper has strong policy implications for policy makers. In fact, a good government policy is essential in order to attract foreign investors.

Suggested Citation

  • Nahil Boussiga & Ezzeddine Abaoub, 2015. "How Does Government Policy Affect Equity Risk Premium?," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(2), pages 65-75.
  • Handle: RePEc:ods:journl:v:4:y:2015:i:2:p:65-75
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    References listed on IDEAS

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    1. John Y. Campbell & Tuomo Vuolteenaho, 2004. "Inflation Illusion and Stock Prices," American Economic Review, American Economic Association, vol. 94(2), pages 19-23, May.
    2. Donadelli, Michael & Persha, Lauren, 2014. "Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty," Research in International Business and Finance, Elsevier, vol. 30(C), pages 284-309.
    3. Vo, Xuan Vinh & Daly, Kevin James, 2007. "The determinants of international financial integration," Global Finance Journal, Elsevier, vol. 18(2), pages 228-250.
    4. Takeo Hoshi, 2011. "Financial Regulation: Lessons from the Recent Financial Crises," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 120-128, March.
    5. Abdiweli Ali, 2001. "Political instability, policy uncertainty, and economic growth: An empirical investigation," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(1), pages 87-106, March.
    6. Nahil Boussiga & Ezzeddine Abaoub, 2013. "International Financial Integration And Equity Risk Premium In Emerging Countries," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 2(1), pages 4-14.
    7. Brandt, Michael W. & Wang, Kevin Q., 2003. "Time-varying risk aversion and unexpected inflation," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1457-1498, October.
    8. Hooper, Vince & Sim, Ah Boon & Uppal, Asfandyar, 2009. "Governance and stock market performance," Economic Systems, Elsevier, vol. 33(2), pages 93-116, June.
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    Cited by:

    1. Siyu Wu & Xiaosong Zheng, 2016. "An Exploratory Study of Enterprise Risk Management in Northern Europe," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(4), pages 280-289, November.
    2. Umit Karagozlu, 2016. "Managing Risks in Commercial Banks," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(4), pages 250-263, November.
    3. Ziyi Li & Xiaosong Zheng, 2017. "A Critical Study of Commercial Banks' Credit Risk Assessment and Management for SMEs: The Case of Agricultural Bank of China," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 6(2), pages 106-117, May.

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