Abstract
Corruption has a profound impact on many aspects of a society, such as, productivity growth, foreign direct investment or income equality. We propose that corruption also has an impact on stability of financial markets. In this study, we demonstrate a strong correlation between corruption and financial market stability and compare corruption with other social and economic factors in terms of their correlations with financial market stability. The data used in this study include financial data of 29 countries’ index funds for the last five years (2002–07), the Corruption Perception Index 2007 and the Index of Economic Freedom 2007. JEL Classification: D73, G15, G32
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