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Financial Liberalization And Stock Market Efficiency: Measuring The Threshold Effects Of Governance

Author

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  • NAVAZ NAGHAVI

    (Taylor’s Business School, Taylor’s University, Lakeside Campus, No 1. Jalan Taylors, 47500, Subang Jaya, Selangor, Malaysia)

  • MUHAMMAD SHUJAAT MUBARIK

    (Faculty of Business Administration, Mohammad Ali Jinnah University, 22E Block 6 PECHS, Karachi Pakistan)

  • DEVINDER KAUR

    (Faculty of Business & Management, Asia Pacific University of Technology & Innovation (APU), Technology Park Malaysia, Bukit Jalil, 57000, Kuala Lumpur, Malaysia)

Abstract

This study takes the initiative to make a link between empirical aspect of an economy and theoretical part of it. Investigating econometric findings, the current study has taken advantages of profound analytical discussions to justify which school of thought describe liberalization phenomena and its relevant side effects. This paper presents an investigation into the effects of financial openness on stock market efficiency in emerging markets after controlling for certain level of institutional development. The results demonstrate that there is a threshold effect in the liberalization–efficiency relationship. Specifically, we found that the impact of financial liberalization on informational efficiency of the stock market was positive and significant only after a certain threshold level of institutional development had been attained. Below this level, the effect of financial liberalization on stock market efficiency was negative. This finding suggests that the positive effects of financial liberalization on informational efficiency are contingent on the level of institutional development, thus supporting the idea that financial liberalization embedded within a sound institutional framework has the capacity to enhance stock market efficiency. The conclusion that the governance concept, emphasized in econometric findings, is implicit in the definition of neoliberalism can be considered as one of the contributions of the study.

Suggested Citation

  • Navaz Naghavi & Muhammad Shujaat Mubarik & Devinder Kaur, 2018. "Financial Liberalization And Stock Market Efficiency: Measuring The Threshold Effects Of Governance," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 13(04), pages 1-24, December.
    • Handle: RePEc:wsi:afexxx:v:13:y:2018:i:04:n:s2010495218500161
    DOI: 10.1142/S2010495218500161
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