IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v57y2019i4d10.1007_s00181-018-1502-z.html
   My bibliography  Save this article

National culture effects on stock market volatility level

Author

Listed:
  • Wei-han Liu

    (Southern University of Science and Technology)

Abstract

Hofstede’s six measures of national culture (Hofstede in Culture’s consequence. Sage Publications, New York, 1980; Bond and Hofstede in Organ Dyn 16(4):4–21, 1988; Hofstede et al. in Cultures and organizations: software of the mind, 3rd edn. McGraw-Hill, New York, 2010) are applied to study the implied volatility levels in 15 international major equity markets. The cross-sectional analysis, based on the Generalized Additive Model, confirms that all the six measures play an intuitive role in explaining the volatility levels in the respective equity markets. This study confirms the significant long-term role of national culture. The outcomes contribute to provide the specific intuitive patterns of the six measures in explaining the implied volatility levels in the international equity markets.

Suggested Citation

  • Wei-han Liu, 2019. "National culture effects on stock market volatility level," Empirical Economics, Springer, vol. 57(4), pages 1229-1253, October.
    • Handle: RePEc:spr:empeco:v:57:y:2019:i:4:d:10.1007_s00181-018-1502-z
    DOI: 10.1007/s00181-018-1502-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00181-018-1502-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00181-018-1502-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andy C W Chui & Chuck C Y Kwok, 2008. "National culture and life insurance consumption," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(1), pages 88-101, January.
    2. Christoffersen, Peter & Jacobs, Kris & Chang, Bo Young, 2013. "Forecasting with Option-Implied Information," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 581-656, Elsevier.
    3. Liang Shao & Chuck CY Kwok & Omrane Guedhami, 2010. "National culture and dividend policy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(8), pages 1391-1414, October.
    4. Cao, Melanie & Wei, Jason, 2005. "Stock market returns: A note on temperature anomaly," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1559-1573, June.
    5. Yaw‐Huei Wang, 2013. "Volatility Information in the Trading Activity of Stocks, Options, and Volatility Options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(8), pages 752-773, August.
    6. Verma, Rahul & Verma, Priti, 2007. "Noise trading and stock market volatility," Journal of Multinational Financial Management, Elsevier, vol. 17(3), pages 231-243, July.
    7. Brown, Philip & Chua, Angeline & Mitchell, Jason, 2002. "The influence of cultural factors on price clustering: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 307-332, June.
    8. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    9. Szakmary, Andrew & Ors, Evren & Kyoung Kim, Jin & Davidson, Wallace III, 2003. "The predictive power of implied volatility: Evidence from 35 futures markets," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2151-2175, November.
    10. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
    11. Andy C.W. Chui & Sheridan Titman & K.C. John Wei, 2010. "Individualism and Momentum around the World," Journal of Finance, American Finance Association, vol. 65(1), pages 361-392, February.
    12. Fidrmuc, Jana P. & Jacob, Marcus, 2010. "Culture, agency costs, and dividends," Journal of Comparative Economics, Elsevier, vol. 38(3), pages 321-339, September.
    13. Seo, Sung Won & Kim, Jun Sik, 2015. "The information content of option-implied information for volatility forecasting with investor sentiment," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 106-120.
    14. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    15. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
    16. Lee, Wayne Y. & Jiang, Christine X. & Indro, Daniel C., 2002. "Stock market volatility, excess returns, and the role of investor sentiment," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2277-2299.
    17. Henry L. Tosi & Thomas Greckhamer, 2004. "Culture and CEO Compensation," Organization Science, INFORMS, vol. 15(6), pages 657-670, December.
    18. Wei-han Liu, 2013. "Lunar calendar effect: evidence of the Chinese Farmer's Calendar on the equity markets in East Asia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 18(4), pages 560-593.
    19. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
    20. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340, Elsevier.
    21. Kurov, Alexander, 2010. "Investor sentiment and the stock market's reaction to monetary policy," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 139-149, January.
    22. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    23. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, vol. 70(3), pages 313-349, December.
    24. Schmeling, Maik, 2009. "Investor sentiment and stock returns: Some international evidence," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 394-408, June.
    25. Jeffrey R. Gerlach, 2007. "Macroeconomic News And Stock Market Calendar And Weather Anomalies," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(2), pages 283-300, June.
    26. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
    27. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    28. Sam Han & Tony Kang & Stephen Salter & Yong Keun Yoo, 2010. "A cross-country study on the effects of national culture on earnings management," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(1), pages 123-141, January.
    29. Beckers, Stan, 1981. "Standard deviations implied in option prices as predictors of future stock price variability," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 363-381, September.
    30. Kaustia, Markku & Knüpfer, Samuli, 2012. "Peer performance and stock market entry," Journal of Financial Economics, Elsevier, vol. 104(2), pages 321-338.
    31. Jorion, Philippe, 1995. "Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-528, June.
    32. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    33. Beckmann, Daniela & Menkhoff, Lukas & Suto, Megumi, 2008. "Does culture influence asset managers' views and behavior?," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 624-643, September.
    34. Chuck C Y Kwok & Solomon Tadesse, 2006. "National culture and financial systems," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(2), pages 227-247, March.
    35. Susumu Ueno & Uma Sekaran, 1992. "The Influence of Culture on Budget Control Practices in the USA and Japan: An Empirical Study," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(4), pages 659-674, December.
    36. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    37. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    38. Aggarwal, Raj & Goodell, John W., 2009. "Markets and institutions in financial intermediation: National characteristics as determinants," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1770-1780, October.
    39. Shefrin, Hersh & Statman, Meir, 2000. "Behavioral Portfolio Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(2), pages 127-151, June.
    40. G. Elliott & C. Granger & A. Timmermann (ed.), 2013. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 2, number 2.
    41. Binder, John J & Merges, Matthias J, 2001. "Stock Market Volatility and Economic Factors," Review of Quantitative Finance and Accounting, Springer, vol. 17(1), pages 5-26, July.
    42. Beugelsdijk, Sjoerd & Frijns, Bart, 2010. "A cultural explanation of the foreign bias in international asset allocation," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2121-2131, September.
    43. Chang, Eric C. & Dong, Sen, 2006. "Idiosyncratic volatility, fundamentals, and institutional herding: Evidence from the Japanese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 14(2), pages 135-154, April.
    44. Manaster, Steven & Rendleman, Richard J, Jr, 1982. "Option Prices as Predictors of Equilibrium Stock Prices," Journal of Finance, American Finance Association, vol. 37(4), pages 1043-1057, September.
    45. Heejoon Han & Myung D. Park, 2013. "Comparison of Realized Measure and Implied Volatility in Forecasting Volatility," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(6), pages 522-533, September.
    46. Vihang Errunza & Ked Hogan, 1998. "Macroeconomic Determinants of European Stock Market Volatility," European Financial Management, European Financial Management Association, vol. 4(3), pages 361-377, November.
    47. Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November.
    48. Chang, Shao-Chi & Chen, Sheng-Syan & Chou, Robin K. & Lin, Yueh-Hsiang, 2008. "Weather and intraday patterns in stock returns and trading activity," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1754-1766, September.
    49. Chen, Yangyang & Dou, Paul Y. & Rhee, S. Ghon & Truong, Cameron & Veeraraghavan, Madhu, 2015. "National culture and corporate cash holdings around the world," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 1-18.
    50. Bing Han, 2008. "Investor Sentiment and Option Prices," The Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 387-414, January.
    51. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    52. Andy C W Chui & Alison E Lloyd & Chuck C Y Kwok, 2002. "The Determination of Capital Structure: Is National Culture a Missing Piece to the Puzzle?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(1), pages 99-127, March.
    53. Geert Hofstede, 1995. "Insurance as a Product of National Values*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 20(4), pages 423-429, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Silva, Thiago Christiano & Wilhelm, Paulo Victor Berri & Tabak, Benjamin Miranda, 2023. "Trade matters except to war neighbors: The international stock market reaction to 2022 Russia’s invasion of Ukraine," Research in International Business and Finance, Elsevier, vol. 65(C).
    2. Fernandez-Perez, Adrian & Gilbert, Aaron & Indriawan, Ivan & Nguyen, Nhut H., 2021. "COVID-19 pandemic and stock market response: A culture effect," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    3. Hoang, Huy Viet & Nguyen, Cuong & Nguyen, Duc Khuong, 2022. "Corporate immunity, national culture and stock returns: Startups amid the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 79(C).
    4. Grossmann, Axel & Ngo, Thanh, 2022. "Cross-country cultural and economic freedom influences on the relationship between economic policy uncertainty and ADR mispricing," Research in International Business and Finance, Elsevier, vol. 62(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huong Dang, 2014. "How dimensions of national culture and institutional characteristics influence sovereign rating migration dynamics," ZenTra Working Papers in Transnational Studies 42 / 2014, ZenTra - Center for Transnational Studies.
    2. El Ghoul, Sadok & Zheng, Xiaolan, 2016. "Trade credit provision and national culture," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 475-501.
    3. Pascal Gantenbein & Axel Kind & Christophe Volonté, 2019. "Individualism and Venture Capital: A Cross-Country Study," Management International Review, Springer, vol. 59(5), pages 741-777, October.
    4. Wang, Wenzhao & Duxbury, Darren, 2021. "Institutional investor sentiment and the mean-variance relationship: Global evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 415-441.
    5. Kim, Woo Sung & Kiymaz, Halil & Oh, Sekyung, 2020. "Do country-level legal, corporate governance, and cultural characteristics influence the relationship between insider ownership and dividend policy?," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    6. Gupta, Deepika R. & Veliyath, Rajaram & George, Rejie, 2018. "Influence of national culture on IPO activity," Journal of Business Research, Elsevier, vol. 90(C), pages 226-246.
    7. Wang, Wenzhao & Su, Chen & Duxbury, Darren, 2021. "Investor sentiment and stock returns: Global evidence," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 365-391.
    8. Haq, Mamiza & Hu, Daniel & Faff, Robert & Pathan, Shams, 2018. "New evidence on national culture and bank capital structure," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 41-64.
    9. Charles J. Reuter, 2011. "A survey of culture and finance," Post-Print hal-03016357, HAL.
    10. Zheng, Xiaolan & El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y., 2012. "National culture and corporate debt maturity," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 468-488.
    11. Boubakri, Narjess & Saffar, Walid, 2016. "Culture and externally financed firm growth," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 502-520.
    12. Zhe An & Zhe Cao & Zhian Chen & Donghui Li, 2020. "Does individualistic culture impact operational risk?," European Financial Management, European Financial Management Association, vol. 26(3), pages 808-838, June.
    13. Li, Kai & Griffin, Dale & Yue, Heng & Zhao, Longkai, 2013. "How does culture influence corporate risk-taking?," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 1-22.
    14. Tsalavoutas, Ioannis & Tsoligkas, Fanis, 2021. "Uncertainty avoidance and stock price informativeness of future earnings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    15. Elina Pradkhan, 2016. "Impact of culture and patriotism on home bias in bond portfolios," Review of Managerial Science, Springer, vol. 10(2), pages 265-301, March.
    16. Tung Lam Dang & Robert Faff & Hoang Luong & Lily Nguyen, 2019. "Individualistic cultures and crash risk," European Financial Management, European Financial Management Association, vol. 25(3), pages 622-654, June.
    17. Claudia Nadler & Wolfgang Breuer, 2019. "Cultural Finance as a research field: an evaluative survey," Journal of Business Economics, Springer, vol. 89(2), pages 191-220, March.
    18. Aggarwal, Raj & Goodell, John W., 2018. "Sovereign wealth fund governance and national culture," International Business Review, Elsevier, vol. 27(1), pages 78-92.
    19. Fetherolf, Raylin & Lovelace, Kelley Bergsma, 2023. "Dimensions of national culture and R2 around the world," Journal of Banking & Finance, Elsevier, vol. 154(C).
    20. Ron Christian Antonczyk & Wolfgang Breuer & Astrid Juliane Salzmann, 2014. "Long-Term Orientation and Relationship Lending: A Cross-Cultural Study on the Effect of Time Preferences on the Choice of Corporate Debt," Management International Review, Springer, vol. 54(3), pages 381-415, June.

    More about this item

    Keywords

    National culture; Hofstede; Volatility index; Generalized additive model;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:57:y:2019:i:4:d:10.1007_s00181-018-1502-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.