TY  - JOUR
AU  - Hale,Galina
AU  - Razin,Assaf
AU  - Tong,Hui
TI  - Institutional Weakness and Stock Price Volatility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12127
PY  - 2006
Y2  - March 2006
UR  - http://www.nber.org/papers/w12127
L1  - http://www.nber.org/papers/w12127.pdf
N1  - Author contact info:
Galina Hale
Economic Research
Federal Reserve Bank of San Francisco
101 Market St., MS 1130
San Francisco, CA 94105
Tel: 415-974-3131
Fax: 415-974-2168
E-Mail: Galina.B.Hale@sf.frb.org

Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu

Hui Tong
Research Department
IMF Washington DC
700 19th Street N.W.
Washington, DC 20431
E-Mail: htong@imf.org
M2  - featured in NBER digest on 2006-03-27
AB  - We find an empirical regularity that stronger creditor protection reduces the volatility of stock market prices. We analyze two distinct mechanisms that characterize equity price volatility: government guarantees and creditor protection. Using a Tobin q model, we demonstrate that weak creditor protection that gives rise to government guarantees and tightens credit constraints, increases stock price volatility.  Empirically, accounting for the probability of financial crises, we find that government guarantees and weak institutions that tighten credit constraints increase aggregated stock price volatility.
ER  -