Law,finance, and emerging market returns |
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| Institution: | 1. Guangdong Key Laboratory of Agricultural Environment Pollution Integrated Control, Guangdong Institute of Eco-environmental Science & Technology, Guangzhou 510650, China;2. Department of Biomedical Engineering, Xinhua College of Sun Yat-Sen University, Guangzhou 510520, China;3. Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences, Beijing 100101, China;4. School of Life Sciences, Sun Yat-sen University, Guangzhou 510275, China;5. The school of Environmental Science and Engineering, Suzhou University of Science and Technology, Suzhou 215009, China;1. Department of Economics and Finance, UAE University, Al Ain, United Arab Emirates;2. Department of Finance, Audit and Accounting, Champagne School of Management, Groupe ESC Troyes en Champagne, Troyes, France;3. IRG, Université Paris Est, Créteil, France;1. Department of Economics, Michigan State University, East Lansing, MI 48824-1024, USA;2. Department of Finance, Michigan State University, East Lansing, MI 48824-1024, USA;3. School of Economics and Finance, Queen Mary University of London, UK;4. Rimini Center for Economic Analysis, Italy;5. Department of Economics, Kookmin University, Seoul, Republic of Korea |
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| Abstract: | This paper investigates how legal foundation influences the return distribution, the growth rate of market capitalization, the ratio of market capitalization to gross domestic product (GDP) and the correlation structure of emerging market indices with developed market indices. Using a sample of 24 emerging markets, we find that emerging markets from the French civil] law systems earned higher returns, have higher correlations with the world market portfolio, higher average growth rates in market capitalization and lower average market capitalization to GDP than their English common law counterparts. Finally, most emerging markets returns are more highly correlated to the returns of developed markets with an English common law tradition. Our results suggest that diversification potential is highest with the English common law emerging markets but that the diversification benefits come at the cost of reduced returns. |
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