Investigation of the Effect of Economic Freedom on Stock Market Volatility

Abstract

This paper investigates the relationship between economic freedom and stock market volatility in twelve Asian and pacific countries. The period for the study has been taken from 2002 to 2012 using annual indices. In order to assess the volatility, we use autoregressive conditional heteroskedasticity specifications known as GARCH model. In addition, The statistical method used to test the hypotheses of relationship between economic freedom and stock market volatility is panel data method. Significance level of Phillips-Peron (1998) unit root test shows that the variables are reliable. The results indicate that there is no relationship between economic freedom and stock market volatility. Additionally, the study indicates that there is a relationship between legal structure and security of property rights, access to sound money and freedom of international trade with volatility of stock markets.