from corporate insiders, problems such as intercorporate income shifting could
make "rm-speci"c information less useful to risk arbitrageurs, and therefore
impede the capitalization of "rm-speci"c information into stock prices. This
e!ect would reduce "rm-speci"c stock price variation, again increasing stock
return synchronicity.
We reject the "rst hypothesis, and "nd some evidence consistent with the
second and third hypotheses stated above. Our formal statistical analysis shows
that economies with more correlated fundamentals do have stock markets with
more synchronous returns, but our best e!orts to control for fundamentals
correlation and volatility do not render per capita GDP insigni"cant. Adding
a variable that measures government respect for private property, however, does
render per capita GDP insigni"cant in explaining stock price synchronicity.
Finally, among developed economies, more protection of public shareholders'
property rights against corporate insiders is correlated with more "rm-speci"c
information being capitalized into stock prices.
We conjecture that the degree to which a country protects private property
rights a!ects both the extent to which information is capitalized into stock
prices and the sort of information that is capitalized. While our econometric
evidence is consistent with this conjecture, we recognize that our explanation is
incomplete. We invite alternative explanations of our empirical "nding that
stock returns are synchronous in low-income economies and asynchronous in
high-income economies. Any such explanations must be consistent with our
"ndings that market size, economy size, and many aspects of fundamentals
volatility do not a!ect the relation between per capita GDP and synchronicity,
but that measures of property rights protection render per capita GDP insigni-
"cant in explaining stock price synchronicity.
In the next section, we review the empirical regularities that motivate this
research. In Section 3, we develop our basic synchronicity measures and show
their negative relationship with per capita GDP. In Section 4, we discuss our
empirical framework and the dependent variables we adopt. In the "fth, sixth
and seventh sections, we present our hypotheses and empirical speci"cations,
report our results, and conduct various robustness checks. In Section 8, we
present conclusions.
from corporate insiders, problems such as intercorporate income shifting couldmake "rm-speci"c information less useful to risk arbitrageurs, and thereforeimpede the capitalization of "rm-speci"c information into stock prices. Thise!ect would reduce "rm-speci"c stock price variation, again increasing stockreturn synchronicity.We reject the "rst hypothesis, and "nd some evidence consistent with thesecond and third hypotheses stated above. Our formal statistical analysis showsthat economies with more correlated fundamentals do have stock markets withmore synchronous returns, but our best e!orts to control for fundamentalscorrelation and volatility do not render per capita GDP insigni"cant. Addinga variable that measures government respect for private property, however, doesrender per capita GDP insigni"cant in explaining stock price synchronicity.Finally, among developed economies, more protection of public shareholders'property rights against corporate insiders is correlated with more "rm-speci"cinformation being capitalized into stock prices.We conjecture that the degree to which a country protects private propertyrights a!ects both the extent to which information is capitalized into stockprices and the sort of information that is capitalized. While our econometricevidence is consistent with this conjecture, we recognize that our explanation isincomplete. We invite alternative explanations of our empirical "nding thatstock returns are synchronous in low-income economies and asynchronous inhigh-income economies. Any such explanations must be consistent with our"ndings that market size, economy size, and many aspects of fundamentalsvolatility do not a!ect the relation between per capita GDP and synchronicity,but that measures of property rights protection render per capita GDP insigni-"cant in explaining stock price synchronicity.In the next section, we review the empirical regularities that motivate thisresearch. In Section 3, we develop our basic synchronicity measures and showtheir negative relationship with per capita GDP. In Section 4, we discuss ourempirical framework and the dependent variables we adopt. In the "fth, sixthand seventh sections, we present our hypotheses and empirical speci"cations,report our results, and conduct various robustness checks. In Section 8, wepresent conclusions.
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