Stock market and happiness: some cross-country evidence of spillover effect and good government

Previous research has examined the influence of stock market valuation on happiness among stock investors. In this study, we analysed how the stock market affects the overall happiness of a country. We conducted further exploration of additional mechanisms that moderate the association between stock market valuation and happiness level. Based on a 68-crosscountry dataset from 2010 to 2017, we examined the association between stock market valuation and happiness. We found that the stock market index was positively associated with the level of happiness. Findings also revealed that the positive association was weaker in countries with an uneven distribution of wealth (high GINI) but stronger in countries with stronger democratic institutions and the rule of law. These findings are robust to controlling for endogeneity using instrument variables, lag variables, and change models. Additional test results indicated that the association between the higher stock market index and the higher happiness level was also significantly moderated by political stability and the control of corruption.