Stock Return, Risk, and Legal Environment around the World

Paul W. Chiou, Alice C. Lee and Cheng Few Lee

Chapter 24 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 821-846 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter shows how the legal environment in a country influences performance and risk of stock across countries at different developmental stages and of various rules of jurisdiction. Using data of 4,916 stocks from 37 countries, our empirical findings confirm that equities in countries with English common-law origin have higher risk premiums than those in civil-law countries, particularly for countries of the French/Spanish code. The indicators representing high efficiency in law system, low corruption, strong legal protection of investors’ rights, and reliable political environment are associated with low risk and high performance. The various elements of legal procedural formalism, however, have differing effects on volatility and return.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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