Long-Term Dependence in World Stock Markets : Does Legal Origin Matter?

Though there is overwhelming evidence of long-term dependence in stock returns series, relatively less attention has been given to explore the factors that generate these long memory effects. Using the Hurst exponents reported by Cajueiro and Tabak (2007) for 41 countries and the available classification of legal systems, this paper explores whether cross - country variations in the degree of long-term dependence can be traced to historically determined differences in legal tradition. However, the statistical analysis conducted in this study reveals that the origin of laws does not really matter. Further investigation reveals that the long memory phenomenon in world stock markets documented by Cajueiro and Tabak (2007) can be explained by their respective level of stock market development, but the strong association between market development and legal family established in the law and finance literature does not hold up in the present study.