DP3681 Financial Development and Stock Returns: A Cross-Country Analysis

Author(s): Harris Dellas, Martin Hess
Publication Date: January 2002
Keyword(s): financial development, stock returns
JEL(s): G15, O10
Programme Areas: International Macroeconomics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3681

We examine stock returns in a cross section of emerging and mature markets (47countries) between 1980-99. The level of financial development turns out to be an important determinant of the performance of stock returns. In general, a deeper and higher quality banking system decreases the volatility of stock returns. It also contributes to a greater synchronization in the movements of domestic and world returns and the same obtains when the stock market is liquid.