Working Paper: CEPR ID: DP2766
Authors: Harris Dellas; Martin Hess
Abstract: We investigate how the relative contribution of external factors to stock price movements varies with the degree of financial development. We find that financial development makes stock markets more susceptible to external influences (both financial and macroeconomic). Interestingly, this effect is present even after having accounted for capital controls and international trade effects.
Keywords: external influences; financial development; stock markets
JEL Codes: F40; G10; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial development (O16) | sensitivity of stock markets to external influences (G15) |
| sensitivity of stock markets to external influences (G15) | stock price movements (G12) |
| financial development (O16) | stock price movements (G12) |
| financial maturity (G53) | sensitivity of stock markets to foreign shocks (G15) |
| local factors (F29) | stock price movements (G12) |