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The impact of globalization and the legal system on stock market quality

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  • Haejung Na
  • Soonho Kim

Abstract

This study examines how globalization affects stock market quality, whether investor protection serves as a channel in this relationship, and how the channel effect varies depending on the legal system. Our empirical analysis confirms that there is a positive causal relationship between globalization and market quality. Also, since we find that globalization induces stronger investor protection, we disentangle the component of investor protection predicted by globalization. Our analysis shows that the globalization-induced component of investor protection has a significantly positive effect on market quality, which demonstrates the role of investor protection as a channel. Finally, we show that these relationships among globalization, investor protection, and market quality are present in civil law countries but not in common law countries. This illustrates that globalization enhances financial market quality via a stronger ability to effect institutional change and investor protection in civil law countries.

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  • Haejung Na & Soonho Kim, 2022. "The impact of globalization and the legal system on stock market quality," Applied Economics, Taylor & Francis Journals, vol. 54(36), pages 4203-4212, August.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:36:p:4203-4212
    DOI: 10.1080/00036846.2022.2026869
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    Cited by:

    1. Muhammad Ramzan & Mohammad Razib Hossain & Kashif Raza Abbasi & Tomiwa Sunday Adebayo & Rafael Alvarado, 2024. "Unveiling time-varying asymmetries in the stock market returns through energy prices, green innovation, and market risk factors: wavelet-based evidence from China," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-36, June.

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