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Political Regimes, Stock Liquidity, and Information Asymmetry in a Global Context

Author

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  • Jang-Chul Kim

    (Department of Accounting, Economics, and Finance, Haile College of Business, Northern Kentucky University, Highland Heights, KY 41099, USA)

  • Qing Su

    (Department of Accounting, Economics, and Finance, Haile College of Business, Northern Kentucky University, Highland Heights, KY 41099, USA)

  • Teressa Elliott

    (Department of Accounting, Economics, and Finance, Haile College of Business, Northern Kentucky University, Highland Heights, KY 41099, USA)

Abstract

This paper investigates the relationship between a country’s political governance and financial market dynamics, with a specific focus on non-U.S. stocks listed on the NYSE. Utilizing an ordinary least squares (OLS) regression model with heteroscedasticity-robust (Huber–White) estimators, we analyze the impact of political governance on stock liquidity and information asymmetry. Our analysis shows that stocks from democracies demonstrate improved liquidity and decreased information asymmetry, contrasting with stocks from autocracies that exhibit the opposite trend. Furthermore, shifts in political regimes dynamically impact stock liquidity and information transparency. These findings offer essential insights for investors, policymakers, and regulators, contributing to informed decision making and the formulation of policies that promote market health and transparency. Additionally, these findings underscore the importance of promoting political stability and transparent governance to foster healthy and efficient financial markets.

Suggested Citation

  • Jang-Chul Kim & Qing Su & Teressa Elliott, 2024. "Political Regimes, Stock Liquidity, and Information Asymmetry in a Global Context," JRFM, MDPI, vol. 17(8), pages 1-16, August.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:8:p:342-:d:1452200
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    References listed on IDEAS

    as
    1. Wang, Quan-Jing & Feng, Gen-Fu & Wang, Hai-Jie & Chang, Chun-Ping, 2021. "The impacts of democracy on innovation: Revisited evidence," Technovation, Elsevier, vol. 108(C).
    2. Roll, Richard, 1984. "A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
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