The information content of stock markets: why do emerging markets have synchronous stock price movements?

• Published in: Journal of financial economics Vol. 58; no. 1; pp. 215 - 260
• Main Authors: Morck, Randall, Yeung, Bernard, Yu, Wayne
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 2000; Elsevier Sequoia S.A
• Subjects: Asset pricing; Asset valuation; Correlation analysis; Emerging markets; Event studies; Financial economics; Information and market efficiency; International capital market; International financial markets; Manycountries; Market efficiency; Property rights; Rates of return; Securities markets; Statistical analysis; Stock exchange; Stock exchanges; Stock prices; Studies; Information and market efficiency; Event studies; G12; International financial markets; Financial economics; G15; G14; G38; N20; Asset pricing
• ISSN: 0304-405X; 1879-2774
• DOI: 10.1016/S0304-405X(00)00071-4

Stock prices move together more in poor economies than in rich economies. This finding is not due to market size and is only partially explained by higher fundamentals correlation in low-income economies. However, measures of property rights do explain this difference. The systematic component of returns variation is large in emerging markets, and appears unrelated to fundamentals co-movement, consistent with noise trader risk. Among developed economy stock markets, higher firm-specific returns variation is associated with stronger public investor property rights. We propose that strong property rights promote informed arbitrage, which capitalizes detailed firm-specific information.