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Can governance quality predict stock market returns? New global evidence

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  • Narayan, Paresh Kumar
  • Sharma, Susan Sunila
  • Thuraisamy, Kannan S.

Abstract

We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies.

Suggested Citation

  • Narayan, Paresh Kumar & Sharma, Susan Sunila & Thuraisamy, Kannan S., 2015. "Can governance quality predict stock market returns? New global evidence," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 367-380.
    • Handle: RePEc:eee:pacfin:v:35:y:2015:i:pa:p:367-380
    DOI: 10.1016/j.pacfin.2015.02.007
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    More about this item

    Keywords

    Predictability; Returns; Governance; Country characteristics;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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