National culture of secrecy and stock price synchronicity: cross-country evidence

This study investigates the relationship between the culture of secrecy and stock price comovement using a large sample of firms in 49 countries over the period 1990 to 2019. We find that stock prices in secretive societies comove more than stock prices in less secretive societies. This higher comovement occurs primarily because idiosyncratic volatility is lower. We attribute this finding to cultural biases in secretive societies which deter investors’ information-seeking behavior. To support these conjectures, we provide evidence of stronger mean reversals (less informed trading) in these societies. Our results persist when we account for cross-country differences in firms’ liquidity and information asymmetry, and when we control for cash flow uncertainty. Finally, the enforcement of insider trading laws in secretive countries is associated with less privately informed trading and lower idiosyncratic volatility.