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

Publication Date

24/04/2001

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Abstract

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.