Price, Cultural Dimensions, and the Cross-Section of Expected Stock Returns

Abstract

We document a nominal stock price effect that is (like momentum) associated with (national) culture. Using the full spectrum of cultural dimensions proposed by Hofstede et al. and the cross-section of stock returns of 41 countries, we not only show a robust predictive and explanatory power of price in conjunction with several cultural dimensions, but of cultural differences in general. Although momentum and price are related investment strategies, we find a broad (escalating) European high-price effect, but a material low-price effect in Asia as well as the most significant and robust low-price effect for the US. Most consistent around the world, high-priced stocks show lower return volatility and market betas than low-priced stocks and lower values for skewness of returns.