Country Governance and International Equity Returns

1 Pages Posted: 11 Dec 2015 Last revised: 18 Jan 2022

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 )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

Nhut H. Nguyen

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

Harvey Nguyen

Massey University, Massey Business School ( email )

Private Bag 11 222
Auckland, North Shore, Albany 0632
New Zealand

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
234
Abstract Views
1,917
Rank
238,301
PlumX Metrics