Taking Stock Seriously: Equity Market Performance, Government Policy, and Financial Globalization

International Studies Quarterly, Vol. 52, No. 2, pp. 405-425, 2008

Posted: 11 Jun 2008 Last revised: 13 Jul 2008

See all articles by Layna Mosley

Layna Mosley

University of North Carolina (UNC) at Chapel Hill - Department of Political Science

David Andrew Singer

Massachusetts Institute of Technology (MIT) - Department of Political Science

Date Written: 2008

Abstract

Are equity markets just another facet of global finance, or are they unique in their responses to - and influences on - government policies and institutions? Recent work has explored the impact of political factors on bond market behavior and foreign direct investment, but little attention has been paid to stock markets. On the basis of the particular concerns of equity investors, we hypothesize a positive association between stock market valuations and levels of democracy, shareholder rights, legal traditions, and capital account liberalization, a negative association with real interest rates, and no association with fiscal deficits or surpluses. We assess our expectations by analyzing the political and institutional determinants of aggregate price-to-earnings ratios for a sample of up to 37 countries from 1985 to 2004, using both cross-sectional and time-series cross-sectional analyses. We find strong support for most, but not all, of our hypotheses. Our findings suggest that we must disaggregate the effects of different asset markets to understand the impact of economic globalization on government policies.

Keywords: Equity markets, sovereign bonds, capital account liberalization, price-to-earnings ratios, shareholder rights

JEL Classification: G15, G38

Suggested Citation

Mosley, Layna and Singer, David Andrew, Taking Stock Seriously: Equity Market Performance, Government Policy, and Financial Globalization (2008). International Studies Quarterly, Vol. 52, No. 2, pp. 405-425, 2008, Available at SSRN: https://ssrn.com/abstract=1143501

Layna Mosley

University of North Carolina (UNC) at Chapel Hill - Department of Political Science ( email )

361 Hamilton Hall
CB#3265
Chapel Hill, NC 27599
United States
919-962-3041 (Phone)

David Andrew Singer (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Political Science ( email )

77 Massachusetts Ave.
E53-470
Cambridge, MA 02139-4301
United States

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