Financial Development and Stock Market performance

Harris Dellas and Martin K. Hess
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Martin K. Hess: Studienzentrum Gerzensee, and Department of Economics University of Bern, http://www.szgerzensee.ch/

No 00.13, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: The level of financial development is an important determinant of the performance of capital markets. We examine stock returns in a cross section of emerging and mature markets (49 countries) over 1980-99. Returns in financially underdeveloped countries have been somewhat lower, but significantly more volatile and less closely linkedd to- and influenced by- world stock returns. This implies that the stock markets of financially underdeveloped countries may have contributed to higher global risk diversification but not to higher returns. Two features seemresponsible for these patterns: Higher transaction costs and greater legal (political) uncertainty.

New Economics Papers: this item is included in nep-fmk
Date: 2000-11

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