Country Risk and Stock Market Development: Eligible Markets

Document Type : Original Article

Authors

1 Teaching Assistant -Faculty of Commerce – Cairo University

2 Professor of Finance and Investment Faculty of Commerce – Cairo University

Abstract

This paper investigates the country risk of 61eligible markets on stock market development during the period 1995–2020. The aim of this study is to analyze whether country risks, especially political, economic, and financial risks, impact on the stock market development in eligible markets. Country risk and its components are calculated by ICRG methodology as follows: PRS, and stock market development is calculated by stock market capitalization to GDP. Robust standard error multivariate regression was applied in the study.The results indicate that the composite country risks are directly relative to the stock market development. This refers to the lower the composite country risk, the greater the value of the index, which will lead to increased stock market development. The results indicate that, the impact of the composite country risks on the stock market development, in the developed stock market is mainly driven by the financial, then economic, and then political country risks. and, in emerging stock markets, it is mainly driven by the financial and then political country risks. and, in frontier stock markets, is mainly driven by the economic and then political country risks. Finally, the standalone stock market is mainly driven by the country's political risk.

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