Investor protection and Arab stock market volatility

Abstract

This study examines the effect of investor protection on stock market volatility in Arab stock markets. Recognizing the pivotal role of investor protection in maintaining market stability and enhancing investor confidence, our research investigates the impact of a spectrum of regulatory measures, legal frameworks, and institutional safeguards on stock market volatility. With a particular focus on the unique dynamics characterizing Arab financial markets, we present a rigorous analysis based on a panel dataset comprising data from 11 Arab countries spanning the period from 2010 to 2022, yielding a total of 16,516 observations. To assess stock market volatility and investor protection, we employed advanced econometric methods. Stock market volatility was quantified using a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, while the investor protection level was gauged using the World Bank Doing Business Investor Protection Index. Our findings reveal a significant and robust relationship. They indicate that the protection of investors' rights exerts a pronounced dampening effect on stock market volatility in the Arab context. This result underscores the critical importance of having high levels of investor protection, which emanate from the enactment and enforcement of laws and policies that safeguard investor rights. This, in turn, positions a nation as a "safe haven" for investors and capital, bolstering its attractiveness in the global investment landscape. Stock market environment not only fosters economic growth but also beckons domestic and foreign investments, enhancing the economic prospects of the Arab world.