Cultural Tightness-Looseness and Stock Market Integration

Todea Anita () and Todea Alexandru
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Todea Anita: Babes-Bolyai University, Romania
Todea Alexandru: Babes-Bolyai University, Romania

Studia Universitatis Babeș-Bolyai Oeconomica, 2024, vol. 69, issue 3, 43-55

Abstract: This study examines the relationship between Cultural Tightness-Looseness (CTL) and stock market integration, focusing on a sample of 36 markets from 2004 to 2022. The analysis demonstrates that “loose” cultures, characterized by greater social flexibility, exhibit higher levels of financial integration with the global market. This relationship remains robust after controlling for alternative cultural determinants, such as genetic distance and Hofstede’s dimensions. Additionally, the study investigates CTL’s moderating effect on the relationship between global uncertainty and stock market integration. The findings reveal that in “loose” countries, the impact of global uncertainty on integration is less pronounced, suggesting a buffering effect. The results, validated through alternative specifications and robustness tests, extend the literature by identifying CTL as a unique cultural determinant of financial integration, distinct from long-term cultural barriers like genetic distance. These insights have implications for understanding market behavior under varying cultural and uncertainty conditions.

Keywords: foreign portfolio investments; foreign bias; unfamiliarity; cultural tightness/looseness (search for similar items in EconPapers)
JEL-codes: F15 F36 G15 O50 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:subboe:v:69:y:2024:i:3:p:43-55:n:1005

DOI: 10.2478/subboec-2024-0014

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