The Role of The Democracy Index in The Effect of Economic Freedom on The Stock Exchange Performance

Although the impact of economic freedoms and democracy on the capital market is one of the discussed topics in the literature, the results are still uncertain. Especially in recent years, freedoms have become measurable thanks to the indexes made by certain institutions regarding freedoms. In this way, predictions can be made about the effects of the developments in the freedom of countries on their financial performance. For this reasons, the purpose of the study is to estimate the mediating role of the democracy index with the Structural Equation Model (SEM) in the impact of economic freedom on the stock market performance by using the 2019 data of 33 developing countries. For this purpose, SPSS and SmartPLS3 package programs were used in the analysis of variables within the scope of the research. The results of the analysis revealed that there is no significant relationship between the economic freedom index and stock market performance, and the democracy index does not play a role in the effect of economic freedom on stock market performance. However, it revealed a significant relationship between the economic freedom index and the democracy index.