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Does national culture affect the intensity of volatility linkages in international equity markets?

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  • Rothonis, Stephanie
  • Tran, Duy
  • Wu, Eliza

Abstract

We investigate whether cultural proximity can intensify volatility linkages across international equity markets. Using daily data on national stock market indices for a sample of 49 developed and developing countries, we find that our cultural distance measure is inversely related to the strength in return volatility linkages between country pairs. We also find evidence that national culture is particularly important when there is a wider common investor base between two markets with greater bilateral portfolio investments. Furthermore, we reveal that when one market within a country pair is relatively less open than another market in terms of their foreign exchange trading activity then the cultural distance between them will further weaken volatility linkages. Our results suggest that market participants with similar cultural backgrounds respond to and impound information into equity prices in a similar fashion and this works to intensify volatility linkages around the world.

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  • Rothonis, Stephanie & Tran, Duy & Wu, Eliza, 2016. "Does national culture affect the intensity of volatility linkages in international equity markets?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 85-95.
    • Handle: RePEc:eee:riibaf:v:36:y:2016:i:c:p:85-95
    DOI: 10.1016/j.ribaf.2015.09.005
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    1. Mudakkar, Syeda Rabab & Uppal, Jamshed Y., 2018. "Stability of cross-market bivariate return distributions during financial turbulence," Research in International Business and Finance, Elsevier, vol. 45(C), pages 389-401.
    2. 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.
    3. Kaasa, Anneli & Vadi, Maaja & Varblane, Urmas, 2016. "A new dataset of cultural distances for European countries and regions," Research in International Business and Finance, Elsevier, vol. 37(C), pages 231-241.

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