The influence of cultural distance on the volatility of the international stock market

Xiaoguang Zhou, Yadi Cui, Shihwei Wu and Weiqing Wang

Economic Modelling, 2019, vol. 77, issue C, 289-300

Abstract: Along with the development of cultural dimensions and cultural distance, the influence of cultural variables on the stock market is attracting more and more attention. In this study, we propose an improved gravity model to examine the relationship between culture and the volatility of the international stock market. Firstly, based on Hofstede's cultural dimensions theory, a model of the impact of cultural dimensions on the volatility of the national stock market is presented. Secondly, cultural distance is incorporated into the extended gravity model. Then, models of the impact of cultural distance on fluctuations in the international stock market and on foreign securities investment are proposed. Finally, the results of case studies using samples of national stock market indices indicate that different cultural dimensions have different influences on the volatility of national stock markets. The smaller the cultural distance between countries, the more similar the level of volatility in those countries' stock markets. Greater cultural similarity promotes increased securities investment between countries.

Keywords: Cultural distance; International stock market; Stock market volatility; Cultural dimension; Gravity model (search for similar items in EconPapers)
JEL-codes: C30 C50 G15 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:77:y:2019:i:c:p:289-300

DOI: 10.1016/j.econmod.2018.10.005

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