DP2766 Financial Development and the Sensitivity of Stock Markets to External Influences

Author(s): Harris Dellas , Martin Hess

Publication Date: April 2001

Keyword(s): Financial Development , Stock Markets , External Influences

JEL(s): F40 , G10 , O10

Programme Areas: Financial Economics , International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP2766.asp

We investigate how the relative contribution of external factors to stock price movements varies with the degree of financial development. We find that financial development makes stock markets more susceptible to external influences (both financial and macroeconomic). Interestingly, this effect is present even after having accounted for capital controls and international trade effects.