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Institutional development and stock price synchronicity: Evidence from China

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  • Hasan, Iftekhar
  • Song, Liang
  • Wachtel, Paul

Abstract

Better developed legal and political institutions result in greater availability of reliable firm-specific information. When stock prices reflect more firm-specific information there will be less stock price synchronicity. This paper traces the experience of China, an economy undergoing dramatic institutional change in the last 20 years with rich variation in experiences across provinces. We show that stock price synchronicity is lower when there is institutional development in terms of property rights protection and rule of law. Further-more, we investigate the influence of political pluralism on synchronicity. A more pluralistic regime reduces uncertainty and opaqueness regarding government interventions and therefore increases the value of firm-specific information that reduces synchronicity.

Suggested Citation

  • Hasan, Iftekhar & Song, Liang & Wachtel, Paul, 2013. "Institutional development and stock price synchronicity: Evidence from China," BOFIT Discussion Papers 20/2013, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2013_020
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    More about this item

    Keywords

    Institutions; China; stock price synchronicity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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