Culture and R2
47 Pages Posted: 25 Aug 2013 Last revised: 26 Oct 2015
Date Written: April 23, 2014
Consistent with predictions from the psychology literature, we find that stock prices co-move more (less) in culturally tight (loose) and collectivistic (individualistic) countries. Culture influences stock price synchronicity by affecting correlations in investors’ trading activities and a country’s information environment. Both market-wide and firm-specific variations are lower in tighter cultures. Individualism is mostly associated with higher firm-specific variations. Trade and financial openness weakens the effect of domestic culture on stock price comovements. These results hold for various robustness checks. Our study suggests that culture is an important omitted variable in the literature that investigates cross-country differences in stock price comovements.
Keywords: stock price synchronicity, culture, tightness, individualism, openness
JEL Classification: G15, G12, G02
Suggested Citation: Suggested Citation