DP2766 Financial Development and the Sensitivity of Stock Markets to External Influences

Author(s): Harris Dellas, Martin Hess
Publication Date: April 2001
Keyword(s): External Influences, Financial Development, Stock Markets
JEL(s): F40, G10, O10
Programme Areas: International Macroeconomics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2766

We investigate how the relative contribution of external factors to stock price movements varies with the degree of financial development. We find that financial development makes stock markets more susceptible to external influences (both financial and macroeconomic). Interestingly, this effect is present even after having accounted for capital controls and international trade effects.