Culture and R2

Cheol S. Eun, Lingling Wang, Steven Chong Xiao
2013 Social Science Research Network  
Consistent with predictions from the psychology literature, we find that stock prices co-move more (less) in culturally tight (loose) and collectivistic (individualistic) countries. Culture influences stock price synchronicity by affecting a country's information environment and correlations in investors' trading activities. Both market-wide and firm-specific variations are lower in tighter cultures. Individualism is mostly associated with higher firm-specific variations. Trade and financial
more » ... nness weakens the effect of domestic culture on stock price comovements. These results hold after accounting for endogeneity. Our study suggests that culture is an important omitted variable in the literature that investigates cross-country differences in stock price co-movements. JEL classification: G15; G12; G02.
doi:10.2139/ssrn.2315649 fatcat:l3zuumdxm5gddpwrddtcl3b4fe