Governance, Stock Market Risks and Appraisal Ratios
10 Pages Posted: 4 Nov 2005
Date Written: October 2005
The purpose of this paper is to examine the effect of governance environments upon stock market risks and Appraisal ratios for developed and emerging stock markets over the time period January 1995 to December 2002. Using an augmented international capital asset pricing model (ICAPM) model and allowing for the control of risk factors, we find that governance environments have a significant influence on the total and idiosyncratic risks of stock markets, and subsequently their Appraisal ratios. The results have policy implications for government policy setters as improvements to governance environments may reduce the cost of capital. The results also have implications for active portfolio managers with investments in emerging markets.
Keywords: Appraisal Ratio, Governance, ICAPM
JEL Classification: G15
Suggested Citation: Suggested Citation