Title: A global perspective of market reaction to environmental quality: evidence from dynamic panel approach

Authors: Farzan Yahya; Huy Pham; Muhammad Waqas

Addresses: Institute of Southern Punjab, Multan, Punjab, Pakistan ' RMIT University, Ho Chi Minh City, Vietnam ' Jiangsu University, Zhenjiang, Jiangsu, China

Abstract: This study investigates the effect of environmental quality on stock market performance in the parliamentary and presidential system with the interactive effects of democracy and Foreign Direct Investment (FDI) in 80 countries from 2006 and 2016 using a two-step GMM model. First, we test the direct effect of environmental quality, democracy and FDI on stock market performance after instrumenting and controlling for several macro-economic variables. Second, we examine the moderating effect of democracy and FDI on the relationship between environmental quality and stock market performance. Our results show that (1) environmental performance leads to an increase in stock market performance regardless of the constitutional system, (2) the level of democracy can mitigate the detrimental effect of environmental degradation and improve the stock market performance sub-sequentially in a parliamentary system and (3) FDI facilitates the link between environmental performance and the stock market in a presidential system. The results slightly vary across sub-panels.

Keywords: environmental quality; democracy; FDI; stock market; two-way GMM.

DOI: 10.1504/IJGE.2020.10034621

International Journal of Green Economics, 2020 Vol.14 No.4, pp.366 - 385

Received: 11 Aug 2020
Accepted: 13 Nov 2020

Published online: 20 Jan 2021 *

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