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Can governance quality predict stock market returns? New global evidence
journal contributionposted on 2015-11-01, 00:00 authored by Paresh Narayan, Susan SharmaSusan Sharma, Kannan ThuraisamyKannan Thuraisamy
We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies.