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Article
Publication date: 7 June 2013

Timothy Peterson

The paper aims to determine if a country's Economic Freedom Index value has any relationship to the return of the related country specific exchange traded fund.

Abstract

Purpose

The paper aims to determine if a country's Economic Freedom Index value has any relationship to the return of the related country specific exchange traded fund.

Design/methodology/approach

A total of 36 country specific exchange traded funds were selected for use in this study. The historical returns for 2011, the three‐year period ending in 2011, and the five‐year period ending in 2011 were recorded if available for each exchange traded fund. Each exchange traded fund (ETF) was placed into one of four groups based upon its country's overall Economic Freedom Index value. The range of Economic Index values for each group was the same ones used by the publishers of the Economic Freedom Index. The mean ETF return and standard deviation for 2011, three‐year, and five‐year periods were calculated for each of the four groups. The mean/standard deviation of the Economic Freedom Index and each of its components for 2011, the mean of the three‐year period, and the mean of the five‐year period were calculated for each of the four groups. The degree of statistical significance between the mean returns of the four groups was determined by using ANOVA. The correlation coefficients and the degree of statistical significance were calculated between each component of the index, between each component and the overall index value, and between the overall index value and the ETF returns.

Findings

The correlations between the components of the Economic Freedom Index generally tend to be positive and statistically significant. The correlations between the components of the Economic Freedom Index and the Economic Freedom Index tend to be positive and statistically significant. The correlation between the mean ETF returns of the various groups and the value of the mean Economic Freedom Index tends to be mixed. There appears to be no statistical significance of the difference between the mean ETF returns of each group and the mean overall score of the Economic Freedom Index for that group. For the year 2011 the level of significance was 0.103, for the three‐year period the level of significance was 0.541, and for the five‐year period the level of significance was 0.132. The differences within each group are more than the differences between the groups. The value of the Economic Freedom Index does not appear to correlate with the return of the country specific exchange traded fund.

Originality/value

The paper relates a country's environment for conducting business as represented by its Economic Freedom Index to the equity returns of firms in that country. The results of this study would be of interest to those individuals or institutions making investment decisions regarding country specific exchange traded funds. If a positive correlation exists between the index value and the return of the exchange traded fund, this information could improve the prediction of country specific exchange traded fund returns.

Details

Managerial Finance, vol. 39 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 2 December 2019

Frank Fitzpatrick

Abstract

Details

Understanding Intercultural Interaction: An Analysis of Key Concepts
Type: Book
ISBN: 978-1-83867-397-0

Article
Publication date: 12 October 2012

Juan Carlos Díaz‐Casero, D. Ángel Manuel Díaz‐Aunión, Mari Cruz Sánchez‐Escobedo, Alicia Coduras and Ricardo Hernández‐Mogollón

The purpose of this paper is to examine empirically whether economic freedom affects entrepreneurial activity in three groups of countries, classified according to economic

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Abstract

Purpose

The purpose of this paper is to examine empirically whether economic freedom affects entrepreneurial activity in three groups of countries, classified according to economic development.

Design/methodology/approach

Data on the index of entrepreneurial activity cover the period between 2002 and 2009, and are taken from the annual GEM (Global Entrepreneurship Monitor) reports and from the Index of Economic Freedom published by The Heritage Foundation from 1995 to 2009. The same analysis is carried out, grouping the countries by development level, following the classification included in the Global Competitiveness Report 2009‐2010. A Ridge regression analysis is performed to measure the model's goodness‐of‐fit and to determine equations that can be used for future predictions.

Findings

The results obtained in the correlation analysis show that economic freedom is closely related to entrepreneurial activity. The results suggest that TEA rates, opportunity‐TEA rates and necessity‐TEA rates decrease when there is an increase in economic freedom in a country, as just two of the areas analyzed – i.e. “government size” and “fiscal freedom” – appear to foster the emergence of new entrepreneurs. When countries are grouped by level of economic development, the results for countries belonging to the “Innovation‐Driven Economies” group show that the opportunity‐TEA rates increase as the economic freedom index grows.

Originality/value

The study indicates that entrepreneurship by opportunity increases in the group of Innovation‐Driven Economies with smaller “government size” and more “fiscal freedom”.

Details

Management Decision, vol. 50 no. 9
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 23 October 2009

Carl R. Chen and Ying Sophie Huang

The purpose of this paper is to investigate the relationships between the Index of Economic Freedom, equity market performance and its volatility.

1092

Abstract

Purpose

The purpose of this paper is to investigate the relationships between the Index of Economic Freedom, equity market performance and its volatility.

Design/methodology/approach

The paper examines whether the level of economic freedom is significant for a country's stock market performance and volatiling.

Findings

Regression results show that adjusted stock returns bear little relationship with economic freedom. On the other hand, economic freedom is associated with lower stock market volatility.

Originality/value

The results imply that a country with greater economic freedom provides investors with better mean‐variance investment efficiency.

Details

International Journal of Accounting & Information Management, vol. 17 no. 2
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 5 April 2013

Peter T. Calcagno and Justin D. Benefield

The purpose of this paper is to show that state economic policies, in addition to state economic performance, impact state bond ratings.

Abstract

Purpose

The purpose of this paper is to show that state economic policies, in addition to state economic performance, impact state bond ratings.

Design/methodology/approach

Using a sample of 39 states over the period 1998‐2008, regression analysis is employed to determine whether various measures of economic freedom contribute to state bond ratings.

Findings

After controlling for common factors such as state per‐capita income, unemployment, the ratio of tax revenue to income, state debt as a percentage of government revenue, and public corruption, results suggest that greater economic freedom is associated with higher bond ratings. For example, a one standard deviation increase in Area 2 of the Economic Freedom of North America index (Takings and Taxation) would be associated with a 0.36 increase in Moody's bond rating for that state, which translates to approximately a $247 lower cost per million dollars of debt.

Originality/value

This study contributes to the empirical state bond rating literature by highlighting that states with greater economic freedom have higher bond ratings and, therefore, pay lower borrowing costs than their counterparts with lower economic freedom index scores.

Details

Journal of Financial Economic Policy, vol. 5 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 7 January 2019

Bikash Ranjan Mishra and Pabitra Kumar Jena

The purpose of this paper is to examine the determinants of foreign direct investment (FDI) flows from some leading developed countries (the USA, Japan, Germany, the…

1156

Abstract

Purpose

The purpose of this paper is to examine the determinants of foreign direct investment (FDI) flows from some leading developed countries (the USA, Japan, Germany, the Netherlands, the UK and France) into major four Asian economies (China, Korea, India and Singapore).

Design/methodology/approach

Using one basic and four augmented versions of gravity model technique, the authors tried to examine the determinants of bilateral FDI flows in four major Asian economies. The study used World Development Indicators, CEPII, KOF and Heritage Foundation data for period 2001–2012.

Findings

The results revealed that besides the market size for host and source country, other criteria such as distance, common language and common border also influence foreign investors. Other macroeconomic factors such as inflation rate and real interest rate are among the key factors that attract more FDI. In addition to economic factors, institutional and infrastructural factors such as telecommunication, degree of openness, index of globalisation and index of economic freedom also stimulate the international investors from the developed world to the major Asian countries.

Research limitations/implications

It is altogether possible that only a set of home country specific characteristics or host country specific characteristics does not matter when determining FDI. Most empirical studies using indices such as the index of globalisation and economic freedom are subject to certain methodological limitations such as model selection, parameter heterogeneity, outliers and moral hazard.

Practical implications

More distance between the host and source country would result in less FDI flows due to more managerial and raw material supply chain cost. Similarly, more gross domestic product (GDP) and per capita income (PCI) are leading to more FDI flows into Asian economics. Therefore, major Asian economies should frame their economic policies in such a manner where these counties can strengthen their GDP as well as PCI. Furthermore, above countries should open its economy more and more for better FDI flows as it seems that economic globalisation and economic freedom are major determinants of bilateral FDI flows. The negative impact of inflation and interest rate should be controlled.

Social implications

From policy perspective, higher scores of economic, social and political globalisation also attract high FDI to the host country. On the same line higher scores in economic freedom mean that less restrictions in terms of economic policies and the policy environment are conducive for free trade and resource transfers. Higher scores in trade freedom, investment freedom and freedom from corruptions also show more developed and conducive policy environment. In the same reasoning higher scores in the composite index of economic freedom which takes information from trade freedom, investment freedom and freedom from corruption and others also encourage flow of FDI in to the host country.

Originality/value

This is the first paper which combines the globalisation index, economic freedom index and distance along with some major macroeconomic variables.

Details

Journal of Economic Studies, vol. 46 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 2 May 2017

Sriparna Ghosh and Bryan C. McCannon

We explore how economic freedom measurements can be used to guide policy.

Abstract

Purpose

We explore how economic freedom measurements can be used to guide policy.

Design/methodology/approach

We propose a method for creating a growth-enhancing economic freedom index, which allows for nonlinearities and interaction effects between the components to economic freedom. We use this method to illustrate that US states differ in which policy area generates the greatest gains.

Findings

To validate the method presented, we apply our index to state bond markets. Financial market participants have the incentive to properly evaluate states’ policies. If our measurement is useful, then it should correlate with bond ratings. Consistent with this hypothesis, we present evidence that state bond ratings are strongly correlated with our growth-enhancing economic freedom index.

Originality/value

It has been well-established that economic freedom is associated with good economic outcomes. Economic freedom is comprised of numerous dimensions. Thus, the marginal benefit of improving policy in one area can be expected to depend on the amount of freedom in the other dimensions. Which policy improvement is most impactful depends on the entire menu of current policies and, therefore, differs between states. Our new method can then be used as a guide to determining for a particular state which policies can be expected to impact economic well-being the most.

Details

Journal of Financial Economic Policy, vol. 9 no. 02
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 24 August 2012

Congsheng Wu

Many foreign firms have made their initial public offering (IPO) debuts in the USA, without first being listed in their home market. The purpose of this paper is to…

1064

Abstract

Purpose

Many foreign firms have made their initial public offering (IPO) debuts in the USA, without first being listed in their home market. The purpose of this paper is to investigate the association of a wide range of country risk measures with the valuation of foreign IPOs.

Design/methodology/approach

Based on the law and finance literature, it is hypothesized that IPO firms domiciled in countries with higher country risk are worth less, other things equal. This hypothesis is tested with a sample of international companies making their IPO debuts in the USA between 1986 and 2002.

Findings

It is found that several commonly used country‐level variables explain the observed IPO valuation differences across countries. In particular, the index of economic freedom, developed by the Heritage Foundation, and the Transparency International's corruption index have a significant impact on post‐offer IPO valuations. Specifically, IPO firms hailing from countries with more economic freedom and less corruption are associated with higher valuation in the aftermarket.

Originality/value

The paper investigates whether some commonly‐used country risk measures affect the valuation of newly US‐listed foreign firms.

Article
Publication date: 19 January 2015

Rakesh B Sambharya and Abdul A Rasheed

This study aims to examine the effect of the various dimensions of economic freedom and political freedom in host countries on the foreign direct investment (FDI) inflows…

1349

Abstract

Purpose

This study aims to examine the effect of the various dimensions of economic freedom and political freedom in host countries on the foreign direct investment (FDI) inflows over a six-year period from 1995 to 2000 in 95 countries.

Design/methodology/approach

The sample consists of 95 countries and relates to the time period from 1995 to 2000. The sample is of a longitudinal or panel nature.

Findings

Results indicate that better economic management (monetary policy, fiscal burden and banking and finance), less government participation in the economy, less state intervention (strong property rights, less regulation, low prevalence of informal markets and less corruption), absence of wage and price controls and higher levels of political freedom lead to higher FDI inflows after controlling for FDI stock.

Research limitations/implications

Most empirical studies using indices such as the Index of Economic freedom are subject to certain methodological limitations such as model selection, parameter heterogeneity and outliers and moral hazard.

Practical implications

Empirical findings suggest that the role played by governments in national economies have significant influence over FDI decisions.

Social implications

From a policy perspective, our results imply that to attract FDI, governments will need to improve the institutional environments of their countries. More specifically, improving the levels of economic and political freedoms can greatly facilitate the inflow of FDI.

Originality/value

One of the main contributions of the present study to the international business literature is that it is one of the first that explicitly relates the ten components that constitute “economic freedom” to FDI.

Article
Publication date: 27 November 2019

Rafik Harkati, Syed Musa Alhabshi and Salina Kassim

The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian…

Abstract

Purpose

The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian dual banking system. It also aims to make a comparative analysis between Islamic and conventional banks operating in this dual banking sector. Moreover, the study is an effort to enrich the existing literature by presenting empirical evidence on the argument that the risk-taking behavior of the two types of banks is indistinguishable given that they operate in the same regulatory environment.

Design/methodology/approach

Secondary data of all banks operating in the Malaysian banking sector are collected from FitchConnect database, in addition to the economic freedom index from Foundation Heritage for the period 2011–2017. Generalized least squares technique is employed to estimate the influence of economic freedom and the six relevant subcomponents of it on the risk-taking behavior of banks.

Findings

The level of economic freedom influenced risk-taking behavior within the banking sector as a whole, conventional and Islamic banking sectors negatively during the study period (2011–2017). Risk-taking behavior of conventional and Islamic banks is similar. However, conventional banks turn to be less influenced by economic freedom level as compared to Islamic banks.

Practical implications

The government and regulators may benefit from the results by rethinking and setting the best economic freedom index that better serves the stability of the banking system, and lessens banks’ risk-taking inclination.

Originality/value

To the present time, this paper is thought to be of a significant contribution. Given the argument that Islamic and conventional banks behave in the same way. This is one of the first attempts to address this issue in light of the influence of economic freedom and six subcomponents of it on the risk-taking behavior of banks operating in a dual banking system.

Details

Review of Behavioral Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1940-5979

Keywords

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