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Institutional development and stock price synchronicity: Evidence from China

  • Hasan, Iftekhar



  • Song, Liang



  • Wachtel , Paul



Better developed legal and political institutions result in greater availability of reliable firm-specific information. When stock prices reflect more firm-specific information there will be less stock price synchronicity. This paper traces the experience of China, an economy undergoing dramatic institutional change in the last 20 years with rich variation in experiences across provinces. We show that stock price synchronicity is lower when there is institutional development in terms of property rights protection and rule of law. Furthermore, we investigate the influence of political pluralism on synchronicity. A more pluralistic regime reduces uncertainty and opaqueness regarding government interventions and therefore increases the value of firm-specific information that reduces synchronicity.

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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 20/2013.

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Length: 39 pages
Date of creation: 12 Aug 2013
Date of revision:
Publication status: Published as Hasan, Iftekhar, Liang Song and Paul Wachtel, 'Institutional development and stock price synchronicity: Evidence from China' in Journal of Comparative Economics, 2014, pages 92-108.
Handle: RePEc:hhs:bofitp:2013_020
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
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