Impact of capital account liberalization on stock market crashes

Rizwan Khalid, Choudhry Tanveer Shehzad and Bushra Naqvi

International Journal of Finance & Economics, 2023, vol. 28, issue 4, 3700-3726

Abstract: This paper examines the effect of capital account liberalization on the frequency of stock market crashes. We use de jure and de facto measures of capital account liberalization and employ a negative binomial random effect model to analyse the relationship. Using a sample of 65 countries for 1973–2016, we show that with restricted capital account liberalization, an increase in capital flows leads to a decrease in stock market crashes. With a more liberalized capital account convertibility, higher capital flows lead to a rise in stock market crashes. The main key finding supports the notion that free and unregulated capital flows induce more volatility in the stock market, and crashes in these markets are more likely to happen. These results are also robust to different sub‐samples comprising of high‐income OECD countries and non‐OECD countries. Our results are also robust to change in the specification of stock market crashes and changes in capital flows' specification.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/ijfe.2615

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:28:y:2023:i:4:p:3700-3726

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().