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Political ratings, government quality, and liquidity: evidence from Non-U.S. energy stocks listed on the NYSE

Author

Listed:
  • Jang-Chul Kim

    (Haile College of Business, Northern Kentucky University)

  • Qing Su

    (Haile College of Business, Northern Kentucky University)

Abstract

This paper investigates the relationship between liquidity, information asymmetry, political risk rating, government and regulatory quality rating for non-U.S. stocks in the energy industries listed on the New York Stock Exchange (NYSE). Our findings indicate that stocks from countries with higher government and regulatory quality and lower political risk tend to have narrower spreads, a smaller price impact of trades, and a higher market quality index. To explore the impact of political risk on liquidity and information asymmetry, we analyze political shocks resulting from the U.S.-China trade conflict on Chinese energy stocks. Our findings reveal that whenever the U.S.-China political tension escalates over trade policy, the market liquidity and information asymmetry for Chinese energy stocks worsen. This suggests that negative shocks have a detrimental impact on the liquidity of stocks from countries where political tension is escalated.

Suggested Citation

  • Jang-Chul Kim & Qing Su, 2024. "Political ratings, government quality, and liquidity: evidence from Non-U.S. energy stocks listed on the NYSE," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(3), pages 614-643, September.
  • Handle: RePEc:spr:jecfin:v:48:y:2024:i:3:d:10.1007_s12197-024-09666-x
    DOI: 10.1007/s12197-024-09666-x
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    More about this item

    Keywords

    Political risk; Government/Regulatory quality; Liquidity; Information-based trading; Energy stocks;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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