Law and Equity Markets: a Simple Model

Davide Lombardo () and Marco Pagano
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Davide Lombardo: Stanford University

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We analyze how the law and its enforcement affect equity market equilibrium. Improvements in the legal system, while invariably associated with broader equity markets, have different effects on equity returns depending on the institutional change considered and on the degree of international stock market segmentation. The model is useful to interpret the results of recent empirical work, such as La Porta et al. (1997) and Lombardo and Pagano (1999). In particular, it can rationalize the observed cross-country pattern, whereby better institutions are associated both with broader equity markets and higher risk-adjusted returns on equity.

Keywords: law; enforcement; shareholder protection; corporate governance; return on equity (search for similar items in EconPapers)
JEL-codes: G12 K22 K42 (search for similar items in EconPapers)
Date: 1999-10-01
New Economics Papers: this item is included in nep-fmk, nep-law and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Corporate Governance Regimes: Convergence and Diversity, J. McCahery, P. Moerland, T. Raaijmakers and L. Renneboog eds. Oxford University Press, 2002

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Working Paper: Law and Equity Markets: A Simple Model (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:25

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