type="main" xml:id="ecca12072-abs-0001" <p>We develop a model predicting two channels through which creditor protection affects stock prices: (1) the probability of a liquidity crisis leading to a binding investment-finance constraint falls with better creditor protection; (2) the stock prices...</p>

Data show that better creditor protection is correlated across countries with lower average stock market volatility. Moreover, countries with better creditor protection seem to have suffered lower decline in their stock market indexes during the current financial crisis. To explain this...

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...

This paper addresses how creditor protection affects the volatility of stock market prices. Credit protection reduces the probability of oscillations between binding and non-binding states of the credit constraint; thereby lowering the rate of return variance. We test this prediction of a...

This paper analyzes the effect of creditor protection on the volatility of stock market returns. Our application of the Tobin’s q model predicts that credit protection reduces the probability of oscillations between binding and nonbinding states of the credit constraint, which result from...