The moderating role of government intervention in the relationship between investment in artificial intelligence and the development of financial markets

Abstract

The widespread use of Artificial Intelligence (AI) has introduced significant challenges in assessing its impact in fields such as finance and economics. A critical question is whether regulatory measures are essential to mitigate potential risks associated with AI adoption. This study investigates the potential moderating role of government intervention by analysing annual data from 28 countries over eight years (2014–2021). Specifically, this paper explores how AI investment influences financial market indices, emphasising the role of government regulation as moderating factor. The Arellano and Bond Diff-GMM estimator is utilised to uncover insights into whether government intervention affects the influence of AI on financial markets. The findings suggest that AI adoption positively affects financial market indices, and this effect is strengthened when governmental regulation is considered. Thus, the study contributes in two main ways: it fills a gap in our understanding of AI's effects on financial markets and shows how government intervention can shape this dynamic. These insights provide valuable guidance for investors and financial market professionals, helping them leverage AI applications and align their investment strategies with regulatory frameworks.