Scandinavian Working Papers in Economics
Ratio Working Papers,
The Ratio Institute
No 174: The Cost of Insecure Property Rights: R2 Revisited
Per-Olof Bjuggren () and Johan E Eklund ()
Additional contact information
Per-Olof Bjuggren: The Ratio Institute and Jönköping International Business School, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
Johan E Eklund: The Ratio Institute and Jönköping International Business School, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
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.
Keywords: Asset pricing; International financial markets; Property rights; Financial economics
29 pages, September 6, 2011
Full text files
pob_je_insecure_wp174.pdf
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