Economic freedom and the stability of stock prices: A cross-country analysis

Benjamin M. Blau, Tyler J. Brough, Diana W. Thomas

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

This paper investigates the link between economic freedom and the price stability of individual securities in a unique setting. Using a sample of 327 American Depositary Receipts (ADRs), we find an inverse relation between the economic freedom of a ADRs' home country and the price volatility of the ADR. This negative correlation is driven primarily by certain components of economic freedom, such as property right protection, the soundness of the money, and the level of free trade in the home country. Further, we find evidence that less regulation and less government control of markets in the home country leads to more stable ADR prices.

Original languageEnglish (US)
Pages (from-to)182-196
Number of pages15
JournalJournal of International Money and Finance
Volume41
DOIs
StatePublished - Mar 1 2014
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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