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Can governance quality predict stock market returns? New global evidence

Paresh Narayan (), Susan Sharma and Kannan S. Thuraisamy

Pacific-Basin Finance Journal, 2015, vol. 35, issue PA, 367-380

Abstract: We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies.

Keywords: Predictability; Returns; Governance; Country characteristics (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:35:y:2015:i:pa:p:367-380

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