Date of Award

5-2018

Document Type

Honors Thesis

Degree Name

Bachelor of Arts

Department

Finance

Abstract

There is ample evidence that financial market development leads to economic growth. If improving labor rights can be shown to positively influence equity markets, then that, in turn, will lead to economic growth. The finance literature has examined the impact of a broader metric, namely, the Economic Freedom Index, on equity returns worldwide and the evidence is mixed. This study focuses on one dimension of economic freedom: labor rights. Specifically, the study analyzes the impact of labor rights on national equity market indexes, using the Labor Rights Index developed by the Organization for Economic Co-operation and Development (OECD) and the Fraser Institute (FI). Using panel regression analysis for 49 countries (for the OECD Index) and 76 countries (for the FI Index) over the period 1985 through 2014, the study finds that changes in labor rights have a statistically significant positive impact on equity returns, after controlling for business-cycle effects and time fixed effects. The study also finds significant differences in the Labor-Rights-Equity Returns relationship between developed and less developed economies.

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