Governance and Regulatory Determinants of Financial Markets Resilience - Cross Country Evidence

Abstract

The study seeks to identify factors that made some countries more susceptible than others to the impact of the global financial crisis (GFC), and factors that made some more resilient and better able to recover from its adverse impact. Results suggest that different sets of variables best explain the experience of the stock markets in the period following the onset of GFC, than during the recovery period. Developed countries experienced a sharper decline in their stock markets and higher relative volatility following the GFC compared to the emerging markets but also experienced a flatter recovery in the level and volatility of the stock markets. The extent of stock trading and a greater reliance on the international capital inflows prior to the on-set of GFC is associated with subsequent sharper fall and higher volatility in the markets.