Stock market reactions to cryptocurrency legalization: An event study across five emerging economies

The core focus of this study is assessing the stock markets' reactions by studying pre- and post-legalization stats. Utilizing the event window strategy, this study will analyze the stock market behavior by using three windows to capture multiple periods, namely ±90 days, ±30 days, and ±15 days surrounding the legalization event. Descriptive, paired t-test, fixed effects regression, and variance analysis are applied to analyze the changes in market reaction post-event. The results unveil that changes in AR are statistically insignificant, suggesting no or limited impact of regulatory shifts on prices. While volatility shows significant responses, in India, volatility surges after the announcement, while in Brazil and South Africa, it reduces in the long run. Turkey exhibits a short-term decrease in volatility, and only Mexico remains unaffected. The study concludes a significant impact on market risk perception rather than returns. Findings can be productive for policymakers, investors, portfolio managers, and regulators, highlighting the requirement for clear and transparent regulation formation, along with keeping the mutual interests of stakeholders aligned in order to avoid any negative impact of risk perception and increasing uncertainty.