The Banking and Finance Review

Corruption and stock market returns: Evidence from panel data analysis

Chung Baek

Abstract


We examine if corruption has any effect on stock market returns. Using balanced panel data that consist of cross-sectional groups and time periods, we find that an improvement in corruption has a positive effect on stock market returns, and time effects are more dominant than group effects. In addition, it is shown that the random time effect model is preferred to the fixed time effect model for the relationship between corruption and stock market returns. Our study is expected to provide not only a new insight to investors in terms of international diversification but also alternative options to socially responsible or ethical investment funds.


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