The impact of investor protection on stock market volatility
Review of Accounting and Finance
ISSN: 1475-7702
Article publication date: 13 October 2023
Issue publication date: 10 January 2024
Abstract
Purpose
This study aims to advance knowledge on the direct impact of the investor’s protection level on the stock market volatility, that is, whether investor’s protection is an important stock market volatility determinant.
Design/methodology/approach
A panel data was estimated using a sample of 48 countries, from 2006 to 2018, totalizing 31,808 observations. To measure stock market volatility and the investor protection level, a generalized autoregressive conditional heteroskedasticity model and the World Bank Doing Business investor protection index were used, respectively.
Findings
The results evidence that the protection of investors’ rights reduces the stock market volatility. This result indicates that a high level of investor protection, which is the result of a better quality of laws and policies in place that protect investor’s rights, promotes the country as a “safe haven.”
Practical implications
The relationship that the authors intend to analyze becomes important, given that investor protection will give outsiders guarantees on the materialization of their investments. This study contributes important knowledge for investors and for the establishment of government policies as a way of attracting investment.
Originality/value
Although there have been a few studies addressing this relationship, to the knowledge, none of them directly analyses the influence of investor protection on the stock market volatility.
Keywords
Acknowledgements
Since acceptance of this article, the following authors have updated their affiliations: João Silva and Lígia Febra are the School of Management and Technology, Polytechnic of Leiria, Leiria, Portugal; Magali Costa is at CARME – Centre of Applied Research in Management and Economics, School of Management and Technology, Polytechnic of Leiria, Leiria, Portugal.
Funding: This research was supported by National Funds of the FCT–Portuguese Foundation for Science and Technology within the project [UIDB/04928/2020].
Erratum: It has come to the attention of the publisher that the article, João Silva, Lígia Febra and Magali Costa “The impact of investor protection on stock market volatility”, published in Review of Accounting and Finance, was published with missing affiliation acknowledgements for Magali Costa. The affiliation acknowledgement is CARME – Centre of Applied Research in Management and Economics, School of Management and Technology, Polytechnic of Leiria, Leiria, Portugal. The error was introduced in the editorial process and has now been corrected in the online version. The publisher sincerely apologises for this error and for any inconvenience caused.
Citation
Silva, J., Febra, L. and Costa, M. (2024), "The impact of investor protection on stock market volatility", Review of Accounting and Finance, Vol. 23 No. 1, pp. 80-103. https://doi.org/10.1108/RAF-09-2022-0244
Publisher
:Emerald Publishing Limited
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