Country Governance and International Equity Returns

67 Pages Posted: 11 Dec 2015 Last revised: 16 Jan 2018

See all articles by Ben R. Marshall

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Harvey Nguyen

Massey University, Massey Business School; Monash University

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: March 10, 2017

Abstract

Monthly equity returns in countries with strong governance lead monthly equity returns in countries with weak governance. This predictability is robust to alternative ways of measuring country governance, and holds in and out-of-sample at both the group and individual country levels. Strong governance country equities react more quickly to global innovations, which contain value-relevant information for all countries. Information gradually diffuses from strong to weak governance countries, with the predictability being stronger when there is higher information asymmetry and opacity in weak governance countries. Other factors such as market segmentation, short-selling constraints, and trade linkages do not explain the predictability.

Keywords: Governance, Return Predictability, International Equity Markets, Information Diffusion, Slow Moving Capital

JEL Classification: G11, G14

Suggested Citation

Marshall, Ben R. and Nguyen, Nhut H. and Nguyen, Harvey and Visaltanachoti, Nuttawat, Country Governance and International Equity Returns (March 10, 2017). 2016 Financial Markets and Corporate Governance, Asian Finance Association (AsianFA) 2016 Conference, Available at SSRN: https://ssrn.com/abstract=2701603 or http://dx.doi.org/10.2139/ssrn.2701603

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

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Nhut H. Nguyen

Auckland University of Technology ( email )

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Harvey Nguyen

Massey University, Massey Business School ( email )

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Monash University ( email )

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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
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Auckland
New Zealand
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64 9 441 8177 (Fax)

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