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External Conditions, the Evolution of Financial Risks, and the Informational Content of Stock Prices: The Case of Chile

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  • Fernando Díaz Hurtado
  • Fernando Lefort

Abstract

In this article, we find that the dynamics of local financial risks in the Chilean stock market are associated with the evolution of external economic conditions, with a strong reduction in both idiosyncratic and systematic risks during periods of stable conditions. Despite this, we fail to find any significant change in the traditional measures of stock price synchronicity developed in the R2 literature in our sample. We argue that these measures neglect the relationship between stock prices and fundamentals and find that the strength of the association between prices and fundamentals changes during our sample period, being much stronger during times of stable external conditions and diminished stock price volatility.

Suggested Citation

  • Fernando Díaz Hurtado & Fernando Lefort, 2015. "External Conditions, the Evolution of Financial Risks, and the Informational Content of Stock Prices: The Case of Chile," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S1), pages 42-57, January.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s1:p:s42-s57
    DOI: 10.1080/1540496X.2014.998882
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    Cited by:

    1. Ali M. Kutan & Mehmet E. Yaya, 2016. "Armed conflict and financial and economic risk: evidence from Colombia," Risk Management, Palgrave Macmillan, vol. 18(2), pages 159-187, August.
    2. Ahmet Sensoy, 2016. "Impact of sovereign rating changes on stock market co-movements: the case of Latin America," Applied Economics, Taylor & Francis Journals, vol. 48(28), pages 2600-2610, June.

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