Firm-Specific Variation and Openness in Emerging Markets

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Abstract
—This paper compares,the comovement,of individual stock returns across emerging markets. Campbell et al. and Morck et al. have shown that the United States saw rising firm-specific stock return varia- tions, and thus declining comovement, over the second half of the twentieth century. We detect a similar, albeit weaker, pattern in most, but not all, emerging markets. We further find that higher firm-specific variation is associated with greater capital market openness, but not goods market openness. Moreover, this relationship is magnified by institutional integrity (good government). Goods market openness is associated with higher marketwide variation. The price system is just one of those formations which