Regulatory quality, rule of law and stock market performance: A system GMM approach

Document Type : Research Paper


1 Department of Financial Management, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran

2 Faculty of Management, Alzahra University, Tehran, Iran

3 Department of Financial Management, Centaral Tehran Branch, Islamic Azad University, Tehran, Iran

4 Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran


The stock market has played an undeniable role in economic growth and is a complement to the banking sector in allocating financial resources to manufacturing firms. Hence, the role and importance of the stock market in the economy have always been emphasized. There are several factors that affect stock market returns, one of which is the Rule of the law and the Regulatory Quality of countries. Therefore, in this study, the importance of the Rule of the law and the Regulatory Quality on stock returns has been studied in Iran and selected emerging countries in the period 2000-2021 by the system generalized method of moments. The results of this estimate show that at a significance level of 5%, the rule of law and Regulatory Quality have a positive and significant effect on stock returns. Also, the effects of inflation, exchange rate, and growth of industrial production have been positive and significant. The effect of crude oil prices is negative and significant, and trade openness has a positive effect on stock market returns, but this effect is not statistically significant at the significant level of 5%.


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Volume 14, Issue 6
June 2023
Pages 211-220
  • Receive Date: 16 May 2022
  • Revise Date: 18 August 2022
  • Accept Date: 30 August 2022