The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?

Randall Morck, Bernard Yeung and Wayne Yu

Harvard Institute of Economic Research Working Papers from Harvard - Institute of Economic Research

Abstract: Stock prices move together more in low-income economies than in high-income economies. This finding is clearly not due to market size differences, and only partially explained by slightly higher fundamentals correlation in low-income economies. However, measures of a country's institutionalized respect for property riights do appear to explain these differences. We conjecture that weak private property rights impede informed trading and increase systematic noise trader risk. We also conjecture that, in countries that protect public investors poorly from corporate insiders, intercorporate income shifting may make firm-specific information less useful to risk arrbitrageurs and therefore impede its capitalization into stock prices. Although our tests support these conjectures to some extent, we invite other explanations of our main finding.

Date: 1999
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Working Paper: The Information Content of Stock Markets: Why do Emerging Markets have Synchronous Stock Price Movements? (1999)
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