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The Cost of Insecure Property Rights: R2 Revisited

Author

Listed:
  • 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.

Suggested Citation

  • Bjuggren, Per-Olof & Eklund, Johan E, 2011. "The Cost of Insecure Property Rights: R2 Revisited," Ratio Working Papers 174, The Ratio Institute.
    • Handle: RePEc:hhs:ratioi:0174
    as

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    References listed on IDEAS

    as
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    4. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    5. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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