DP3681 Financial Development and Stock Returns: A Cross-Country Analysis

Author(s): Harris Dellas , Martin Hess

Publication Date: January 2002

Keyword(s): financial development , stock returns

JEL(s): G15 , O10

Programme Areas: Financial Economics , International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP3681.asp

We examine stock returns in a cross section of emerging and mature markets (47countries) between 1980-99. The level of financial development turns out to be an important determinant of the performance of stock returns. In general, a deeper and higher quality banking system decreases the volatility of stock returns. It also contributes to a greater synchronization in the movements of domestic and world returns and the same obtains when the stock market is liquid.