Corruption and equity prices : is there any correlation?

Abstract

The relationship between corruption and equity prices has not been widely analysed in past research. Therefore, this dissertation is an attempt to bridge a gap by conducting further research in order to investigate and explore whether there is any relationship between the two variables. This dissertation looks into whether corruption has an effect on equity prices in different countries. First, a group of twenty countries from the MSCI Inc emerging and developed countries list were chosen, and then the returns of these indices were compared with the corruption levels to look for any correlation between the two variables. The results of this part have shown that there is not an identifiable relationship between the two variables being analysed. Friends and finance professionals were asked about whether they would want to invest in a country that is perceived as corrupt. Most friends said that they would not want to invest, whereas the others, namely those who insisted they would still invest in countries seen as corrupt did so but with some reservations. The finance professionals said that they would consider investing, but it depends on the situation at hand. Portfolios for each group of countries were also created so that the returns of each group could be analysed. It was found that the most corrupt emerging countries group had the highest returns, whilst the most corrupt developed countries group had negative returns for the fifteen-year period under review. At the end of the dissertation, the author came up with a number of recommendations that can be taken into consideration for further analysis in this area.