The Cost of Insecure Property Rights: R2 Revisited

Per-Olof Bjuggren () and Johan Eklund ()

No 174, Ratio Working Papers from The Ratio Institute

Abstract: In the conventional CAPM model only a single risk factor is considered. However, using a world market portfolio to estimate systematic risk in national portfolios little of the required rate of return is explained in developing as compared to developed countries. Adding a factor representing institutional risk the predictive power increases substantially. By stressing importance of property and investor rights in this fashion, we add to the research on international differences in R2 initiated by Morck et al. (2000). Our findings are consistent with the hypothesis that stock price synchronicy depends on the institutional quality.

Keywords: Asset pricing; International financial markets; Property rights; Financial economics (search for similar items in EconPapers)
JEL-codes: G12 G15 G38 N20 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2011-09-06
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