Working Paper: CEPR ID: DP3681
Authors: Harris Dellas; Martin Hess
Abstract: We examine stock returns in a cross section of emerging and mature markets (47countries) between 1980-99. The level of financial development turns out to be an important determinant of the performance of stock returns. In general, a deeper and higher quality banking system decreases the volatility of stock returns. It also contributes to a greater synchronization in the movements of domestic and world returns and the same obtains when the stock market is liquid.
Keywords: financial development; stock returns
JEL Codes: G15; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Development (O16) | Stock Return Volatility (G17) |
| Financial Development (O16) | International Market Synchronization (G15) |
| Banking Quality (Private Credit) (G21) | Stock Return Volatility (G17) |
| Banking Quality (Private Credit) (G21) | International Market Synchronization (G15) |
| Stock Market Liquidity (G10) | International Return Correlations (F29) |