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Political uncertainty and stock market liquidity, size, and transaction cost: The role of institutional quality

Kwabi, Frank Obenpong; Adegbite, Emmanuel; Ezeani, Ernest; Wonu, Chizindu; Mumbi, Henry

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Authors

Frank Obenpong Kwabi

EMMANUEL ADEGBITE EMMANUEL.ADEGBITE@NOTTINGHAM.AC.UK
Professor in Accounting and Corporate Governance

Ernest Ezeani

Chizindu Wonu

Henry Mumbi



Abstract

Using panel data of 42 countries from 2001 to 2019, we examine whether political uncertainty (caused by uncertainty about national elections) explains variations in cross-country liquidity, market size, and transaction cost. We also investigate whether institutional quality moderates the negative effects of political uncertainty on stock market development. We show that political uncertainty reduces stock market size, liquidity, and increases transaction costs. Our results indicate that institutional quality moderates the negative effects of political uncertainty on stock market development. However, we find no effects in emerging markets arising from the high prevalence of weak institutions. We confirm the robustness of our findings using alternative financial development measures and endogeneity. This study enhances our understanding of the salient role of political uncertainty in the development of the stock market, with important implications for market regulators, corporations, and investors.

Citation

Kwabi, F. . O., Adegbite, E., Ezeani, E., Wonu, C., & Mumbi, H. (2024). Political uncertainty and stock market liquidity, size, and transaction cost: The role of institutional quality. International Journal of Finance and Economics, 29(2), 2030-2048. https://doi.org/10.1002/ijfe.2760

Journal Article Type Article
Acceptance Date Dec 17, 2022
Online Publication Date Jan 9, 2023
Publication Date 2024-04
Deposit Date Dec 21, 2022
Publicly Available Date Jan 10, 2025
Journal International Journal of Finance and Economics
Print ISSN 1076-9307
Electronic ISSN 1099-1158
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 29
Issue 2
Pages 2030-2048
DOI https://doi.org/10.1002/ijfe.2760
Keywords Institutional quality; political uncertainty; stock market development
Public URL https://nottingham-repository.worktribe.com/output/15166242
Publisher URL https://onlinelibrary.wiley.com/doi/full/10.1002/ijfe.2760

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Publisher Licence URL
https://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright Statement
© 2023 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.




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