Financial disclosure, investor protection and stock market behavior: an international comparison

Abstract

The main purpose of this study is to examine the relationship between financial opacity, investor protection and stock market behavior for sixteen countries. We use the 1995 CIFAR corporate disclosure ratings and the 2006 World Bank investor protection index to measure a country’s relative level of financial transparency and legal protection for investors. The return behavior of each country is examined using numerous time series tests such as serial correlation, Markov chain, runs, duration dependence and variance ratio tests. We found that the results show no significant differences between high and low disclosure countries. However, high disclosure countries appear to be associated with a lower level of stock market volatility. Cox proportional hazard test results indicate that extreme returns (positive and negative) are more likely in low disclosure countries.