Cross-country Differences in Stock Market Development: a Cultural View

Although during the last decades the importance of stock markets has increased in all OECD countries, the cross-country differences appear to be remarkably stable. In this paper we relate the factors determining cross-country differences in stock market activity to deeply rooted norms and values in the society, which are represented by the position of countries on cultural dimensions. Stock markets are relatively more important in countries where inhabitants accept more uncertainty and regard competition as a good way of interacting. These attitudes are represented by the national scores on the dimensions of Uncertainty Avoidance and Masculinity. Recent research shows that the differences between countries on these cultural dimensions are very enduring, which suggests that, provided no large shocks occur, the differences in importance of the stock market are likely to persist. This version: June 2002