Association between Environmental Factors and Equity Market Performance: Evidence from a Nonparametric Frontier Method
Financial Markets and Portfolio Management, Vol. 24, No. 3, 2010
Posted: 2 Sep 2010
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Association Between Environmental Factors and Equity Market Performance: Evidence from a Nonparametric Frontier Method
Abstract
In this cross-sectional study, equity market performance is assessed in a multidimensional risk-adjusted return framework using a nonparametric procedure known as data envelopment analysis. Employing a censored regression procedure, the association between equity market performance and a set of variables that proxy market characteristics and the political and business environment in which the market operates is investigated. The paper contributes to the literature on the association between environmental factors and equity market performance by using a methodology not previously employed in such investigations. The results reveal that equity market performance may be positively related to the size of the market and friendliness of the business environment. Friendliness of the business environment is an objective measure of regulations conducive to business and their enforcement.
Keywords: Relative performance, Data envelopment analysis, Emerging markets, Developed markets, Operational environment
JEL Classification: C44 , C67, G10, G15
Suggested Citation: Suggested Citation