Culture, Stock Market Linkage, and Information Dissemination around the World

We evaluate the effect of impact factors one the stock market linkages among 64 economies and figure out that: (1) the distance between economies is (surprisingly) positively correlated with the market linkage, with the potential explanation being that: longer distance implies higher cost for international trade (which is the material impact between the two economies), then the fraction of information from physical exposure (material information) is lower and the fraction of information from non-material information (e.g., from information asymmetry) is higher since it is less costly, resulting in a stronger linkage; (2) The cultural traits of the influencing country and the influenced country play distinct roles in explaining the market linkages: Higher individualism from the influencing country strengthens the effect, while higher individualism from the influenced country weakens the effect, suggesting that culture is an important omitted variable in the literature that investigates market linkages.