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

Jang-Chul Kim (), Qing Su and Teressa Elliott
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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

JRFM, 2024, vol. 17, issue 8, 1-16

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.

Keywords: democracy; autocracy; polity; spreads; liquidity; price impact; probability of informed trading (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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