Culture and R2

Cheol S. Eun, Lingling Wang and Steven C. Xiao

Journal of Financial Economics, 2015, vol. 115, issue 2, 283-303

Abstract: Consistent with predictions from the psychology literature, we find that stock prices co-move more (less) in culturally tight (loose) and collectivistic (individualistic) countries. Culture influences stock price synchronicity by affecting correlations in investors׳ trading activities and a country׳s information environment. Both market-wide and firm-specific variations are lower in tighter cultures. Individualism is mostly associated with higher firm-specific variations. Trade and financial openness weakens the effect of domestic culture on stock price comovements. These results hold for various robustness checks. Our study suggests that culture is an important omitted variable in the literature that investigates cross-country differences in stock price comovements.

Keywords: Culture; R2; Tightness; Individualism; Openness (search for similar items in EconPapers)
JEL-codes: G02 G12 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (65)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:115:y:2015:i:2:p:283-303

DOI: 10.1016/j.jfineco.2014.09.003

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