Abstract
This study examines the dynamic causal relationship between economic freedom and stock prices in BRICS-T economies from 1998 to 2023. Using the Kónya (2006) panel causality test and the time-varying causality approach of Yilanci and Ozgur (2019), which account for cross-sectional dependence and heterogeneity, the analysis explores whether institutional quality changes influence financial market behavior in major emerging economies. Results reveal time-varying, country-specific effects of economic freedom on stock markets. Strong, persistent causal relationships are found for Türkiye and India, indicating high investor sensitivity to institutional reforms. Conversely, Brazil, Russia, China, and South Africa show weaker or intermittent patterns. These findings suggest economic freedom affects financial markets through evolving legal, regulatory, and macro-financial channels rather than uniform mechanisms. The divergence from earlier Turkish evidence but alignment with Pakistani results highlights the decisive role of national institutional dynamics in shaping market responses. The study provides crucial implications for policymakers seeking to enhance market depth, attract investment, and strengthen institutional credibility in emerging economies. Future research should incorporate higher-frequency institutional indicators or alternative frameworks to validate these findings further.
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