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The influence of cultural distance on the volatility of the international stock market

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  • Zhou, Xiaoguang
  • Cui, Yadi
  • Wu, Shihwei
  • Wang, Weiqing

Abstract

Along with the development of cultural dimensions and cultural distance, the influence of cultural variables on the stock market is attracting more and more attention. In this study, we propose an improved gravity model to examine the relationship between culture and the volatility of the international stock market. Firstly, based on Hofstede's cultural dimensions theory, a model of the impact of cultural dimensions on the volatility of the national stock market is presented. Secondly, cultural distance is incorporated into the extended gravity model. Then, models of the impact of cultural distance on fluctuations in the international stock market and on foreign securities investment are proposed. Finally, the results of case studies using samples of national stock market indices indicate that different cultural dimensions have different influences on the volatility of national stock markets. The smaller the cultural distance between countries, the more similar the level of volatility in those countries' stock markets. Greater cultural similarity promotes increased securities investment between countries.

Suggested Citation

  • Zhou, Xiaoguang & Cui, Yadi & Wu, Shihwei & Wang, Weiqing, 2019. "The influence of cultural distance on the volatility of the international stock market," Economic Modelling, Elsevier, vol. 77(C), pages 289-300.
    • Handle: RePEc:eee:ecmode:v:77:y:2019:i:c:p:289-300
    DOI: 10.1016/j.econmod.2018.10.005
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    More about this item

    Keywords

    Cultural distance; International stock market; Stock market volatility; Cultural dimension; Gravity model;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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