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The Cost of Insecure Property Rights: R2 Revisited

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  • Bjuggren, Per-Olof

    ()
    (The Ratio Institute and Jönköping International Business School)

  • Eklund, Johan E

    ()
    (The Ratio Institute and Jönköping International Business School)

Abstract

In the conventional CAPM model only a single risk factor is considered. However, using a world market portfolio to estimate systematic risk in national portfolios little of the required rate of return is explained in developing as compared to developed countries. Adding a factor representing institutional risk the predictive power increases substantially. By stressing importance of property and investor rights in this fashion, we add to the research on international differences in R2 initiated by Morck et al. (2000). Our findings are consistent with the hypothesis that stock price synchronicy depends on the institutional quality.

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Bibliographic Info

Paper provided by The Ratio Institute in its series Ratio Working Papers with number 174.

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Length: 29 pages
Date of creation: 06 Sep 2011
Date of revision:
Handle: RePEc:hhs:ratioi:0174

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Keywords: Asset pricing; International financial markets; Property rights; Financial economics;

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