The Information Content of Stock Markets: Why Do Emerging Markets Have so Little Firm-Specific Risk?

Davidson Institute Working Paper Series No. 44

Posted: 14 Nov 1997

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Wayne Yu

City University of Hong Kong

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: May 1997

Abstract

Stock prices in emerging economies move in step much more than in advanced economies. Emerging markets' prices capitalize less firm specific information, and appear subject to more economy-wide fluctuations. Measures of this consonance of stock returns are positively correlated with indicators of poor property rights protection, inefficient legal systems and corrupt government. Lax accounting standards strengthen these correlations, but do not have an independent effect. We argue that property rights, judicial efficiency, clean government and meaningful accounting information let stock markets process information and allocate capital better, and thus contribute to economic growth. The absence of these factors may discourage informed trading and foster noise trading.

JEL Classification: G15

Suggested Citation

Morck, Randall K. and Yu, Wayne and Yeung, Bernard Yin, The Information Content of Stock Markets: Why Do Emerging Markets Have so Little Firm-Specific Risk? (May 1997). Davidson Institute Working Paper Series No. 44. Available at SSRN: https://ssrn.com/abstract=11547

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Wayne Yu

City University of Hong Kong ( email )

Kowloon
Hong Kong

Bernard Yin Yeung (Contact Author)

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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