@workingpaper{Asongu2011bf,
title = {Democracy and Stock Market Performance in African Countries},
author = {Simplice A Asongu},
editor = {African 2011 Governance and Development Institute WP/11/021},
url = {http://www.afridev.org/RePEc/agd/agd-wpaper/Democracy-and-Stock-Market-Performance-in-African-Countries.pdf},
year = {2011},
date = {2011-12-01},
abstract = {Purpose – This paper assesses the incidence of political institutions on stock market
performance dynamics in Africa.
Design/methodology/approach – The estimation technique used is a Two-Stage-Least Squares
Instrumental Variable methodology. Channels of democracy, polity and autocracy are
instrumented with legal-origins, religious-legacies, income-levels and press-freedom qualities to
account for stock market performance dynamics of capitalization, value traded, turnover and
number of listed companies. To ensure robustness of the analysis, the following checks are
carried out: (1) usage of alternative indicators of political institutions; (2) employment of two
distinct interchangeable sets of moment conditions that engender every category of the
instruments; (3) usage of alternative indicators of stock market performance; (4) account for the
concern of endogeneity; (5) usage of Principal Component Analysis(PCA) to reduce the
dimensions of stock market dynamics and political indicators and then check for further
robustness of findings in the regressions from resulting indexes.
Findings – Findings broadly demonstrate that democracy improves investigated stock market
performance dynamics.
Practical implications – As a policy recommendation, the role of sound political institutions is
crucial for financial development in Africa. Democracies have important effects on both the
degree of competition for public office and the quality of public offices that favor stock market
development in the African continent.
Originality/value – To the best of our knowledge this is the first paper to assess the incidence of
democracy on stock market performance in an exclusive African context. Political strife has
plagued many African countries and continue to pose a significant threat to financial market
development.},
keywords = {Financial Markets; Government Policy; Political Economy; Development},
pubstate = {published},
tppubtype = {workingpaper}
}