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Country governance and international equity returns

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  • Marshall, Ben R.
  • Nguyen, Hung T.
  • Nguyen, Nhut H.
  • Visaltanachoti, Nuttawat

Abstract

Monthly returns in countries with strong governance lead monthly returns in weak governance countries. This predictability holds in and out-of-sample at both the group and individual country levels. Moreover, the predictability is not fully explained by other related possible sources of cross-country predictability such as differences in country development, political risk, size, liquidity, short-selling constraints, the predictive ability of U.S. equity returns, or non-synchronous trading. It appears that equity returns in different countries react to value-relevant world information at different speeds based on their levels of country governance.

Suggested Citation

  • Marshall, Ben R. & Nguyen, Hung T. & Nguyen, Nhut H. & Visaltanachoti, Nuttawat, 2021. "Country governance and international equity returns," Journal of Banking & Finance, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:jbfina:v:122:y:2021:i:c:s037842662030248x
    DOI: 10.1016/j.jbankfin.2020.105986
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    2. Long, Huaigang & Zaremba, Adam & Zhou, Wenyu & Bouri, Elie, 2022. "Macroeconomics matter: Leading economic indicators and the cross-section of global stock returns," Journal of Financial Markets, Elsevier, vol. 61(C).
    3. Jun Wen & Umar Farooq & Suhaib Anagreh & Mosab I. Tabash, 2022. "Quality of governance and corporate real investment: Assessing the impact of foreign aid," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1115-1134, October.
    4. Liu, Guangqiang & Liu, Boyang, 2023. "How digital technology improves the high-quality development of enterprises and capital markets: A liquidity perspective," Finance Research Letters, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    Governance; Return predictability; Information diffusion;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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