The information content of stock markets : Why do emerging markets have synchronous stock price movements?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)215-260
Journal / PublicationJournal of Financial Economics
Volume58
Issue number1-2
StatePublished - 2000
Externally publishedYes

Abstract

Stock prices move together more in poor economies than in rich economies. This finding is not due to market size and is only partially explained by higher fundamentals correlation in low-income economies. However, measures of property rights do explain this difference. The systematic component of returns variation is large in emerging markets, and appears unrelated to fundamentals co-movement, consistent with noise trader risk. Among developed economy stock markets, higher firm-specific returns variation is associated with stronger public investor property rights. We propose that strong property rights promote informed arbitrage, which capitalizes detailed firm-specific information. © 2000 Elsevier Science B.V.

Research Area(s)

  • Asset pricing, Event studies, Financial economics, G12, G14, G15, G38, Information and market efficiency, International financial markets, N20