Cultural Values and Retail Investor Behavior under Market Volatility: A Cross-Country Panel Analysis (2002–2021)
Keywords:
Financial Development, Stock Market Efficiency, Market Liquidity, Volatility (VIX), Cross-Country Analysis, Emerging and Developed Economies, Panel Data
Abstract
This study examines how national culture influences financial market development and volatility across 18 countries from 2002 to 2021. Integrating Hofstede’s cultural dimensions, particularly Uncertainty Avoidance (UAI) and Individualism (IDV), with market indicators such as capitalization, trading volume, and turnover, the analysis explores how socio-cultural factors interact with global risk conditions measured by the VIX index. Using fixed-effects and dynamic panel regressions, the results show that higher individualism is associated with deeper and more liquid markets, while greater uncertainty avoidance constrains trading intensity but supports more stable capitalization. Global volatility negatively affects liquidity, yet its impact is moderated by cultural characteristics, with stronger effects observed in emerging economies. These findings highlight that financial development is not purely institutional or macroeconomic but also culturally embedded. The study underscores the importance of tailoring financial policies to societal norms to enhance market efficiency and resilience amid global uncertainty.
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References
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33. Kutan, A., Laique, U., Qureshi, F., Rehman, I. U., & Shahzad, F. (2021). A survey on national culture and corporate financial decisions: Current status and future research. International Journal of Emerging Markets, 16(7), 1234–1258.
34. Kwok, C. C. Y., & Tadesse, S. (2006). National culture and financial systems. Journal of International Business Studies, 37(2), 227–247. https://doi.org/10.1057/palgrave.jibs.8400188
35. La Porta, R., Lopez‐De‐Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal Determinants of External Finance. The Journal of Finance, 52(3), 1131–1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x
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45. Nasution, L. N., Suhendi, S., Rusiadi, R., Rangkuty, D. M., & Abdiyanto, A. (2022). Covid-19 Pandemic: Impact on Economic Stability In 8-Em Muslim Countries. Atestasi: Jurnal Ilmiah Akuntansi, 5(1), 336–352.
46. North, D. C. (1991). Institutions. Journal of Economic Perspectives, 5(1), 97–112. https://doi.org/10.1257/jep.5.1.97
47. O’Donnell, N., Shannon, D., & Sheehan, B. (2024). The impact of monetary policy interventions on banking sector stocks: An empirical investigation of the COVID-19 crisis. Financial Innovation, 10(1), 44. https://doi.org/10.1186/s40854-023-00575-2
48. Pástor, Ľ., & Stambaugh, R. F. (2003). Liquidity Risk and Expected Stock Returns. Journal of Political Economy, 111(3), 642–685. https://doi.org/10.1086/374184
49. Rieger, M. O., Wang, M., & Hens, T. (2015). Risk Preferences Around the World. Management Science, 61(3), 637–648. https://doi.org/10.1287/mnsc.2013.1869
50. Schwert, G. W. (1989). Why Does Stock Market Volatility Change Over Time? The Journal of Finance, 44(5), 1115–1153. https://doi.org/10.1111/j.1540-6261.1989.tb02647.x
51. Stulz, R. M., & Williamson, R. (2003). Culture, openness, and finance. Journal of Financial Economics, 70(3), 313–349.
52. Vera-Valdés, J. E. (2022). The persistence of financial volatility after COVID-19. Finance Research Letters, 44, 102056. https://doi.org/10.1016/j.frl.2021.102056
53. Whaley, R. E. (2009). Understanding the VIX. Journal of Portfolio Management, 35(3), 98–105.
2. Badwan, N. (2022). Perspective Chapter: International Financial Markets and Financial Capital Flows-Forms, Factors and Assessment Tools. In Macroeconomic Analysis for Economic Growth. IntechOpen. https://www.intechopen.com/chapters/80683
3. Baker, S. R., Bloom, N., Davis, S. J., Kost, K., Sammon, M., & Viratyosin, T. (2020). The unprecedented stock market reaction to COVID-19. The Review of Asset Pricing Studies, 10(4), 742–758.
4. Baker, S. R., Bloom, N., Davis, S. J., & Terry, S. J. (2020). Covid-induced economic uncertainty. National Bureau of Economic Research. https://www.nber.org/papers/w26983
5. Bate, A. F. (2022). The nexus between uncertainty avoidance culture and risk-taking behaviour in entrepreneurial firms’ decision making. Journal of Intercultural Management, 14(1), 104–132.
6. Beck, T., & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423–442.
7. Beck, T., Levine, R., & Loayza, N. (2000). Finance and the Sources of Growth. Journal of Financial Economics, 58(1–2), 261–300.
8. Bekaert, G., & Harvey, C. R. (1997). Emerging equity market volatility. Journal of Financial Economics, 43(1), 29–77.
9. Bekaert, G., Harvey, C. R., & Lundblad, C. (2006). Growth volatility and financial liberalization. Journal of International Money and Finance, 25(3), 370–403.
10. Bekaert, G., Harvey, C. R., & Lundblad, C. (2007). Liquidity and expected returns: Lessons from emerging markets. The Review of Financial Studies, 20(6), 1783–1831.
11. Bencivenga, V. R., Smith, B. D., & Starr, R. M. (1996). Equity markets, transactions costs, and capital accumulation: An illustration. The World Bank Economic Review, 10(2), 241–265.
12. Beugelsdijk, S., & Frijns, B. (2010). A cultural explanation of the foreign bias in international asset allocation. Journal of Banking & Finance, 34(9), 2121–2131.
13. Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. Journal of Economic Perspectives, 23(1), 77–100.
14. Cao, J., Law, S. H., Samad, A. R. B. A., Mohamad, W. N. B. W., Wang, J., & Yang, X. (2021). Impact of financial development and technological innovation on the volatility of green growth—Evidence from China. Environmental Science and Pollution Research, 28(35), 48053–48069. https://doi.org/10.1007/s11356-021-13828-3
15. Cheng, L. (2024). A Systematic Review of Investor Sentiment Indices and their Predictive Power. https://eprints.qut.edu.au/253592/
16. Chikwira, C., & Mohammed, J. I. (2023). The impact of the stock market on liquidity and economic growth: Evidence of volatile market. Economies, 11(6), 155.
17. Chordia, T., Roll, R., & Subrahmanyam, A. (2001). Market Liquidity and Trading Activity. The Journal of Finance, 56(2), 501–530. https://doi.org/10.1111/0022-1082.00335
18. Chordia, T., Sarkar, A., & Subrahmanyam, A. (2005). An empirical analysis of stock and bond market liquidity. The Review of Financial Studies, 18(1), 85–129.
19. Chui, A. C., & Kwok, C. C. (2009). Cultural practices and life insurance consumption: An international analysis using GLOBE scores. Journal of Multinational Financial Management, 19(4), 273–290.
20. Chui, A. C. W., & Kwok, C. C. Y. (2008). National culture and life insurance consumption. Journal of International Business Studies, 39(1), 88–101. https://doi.org/10.1057/palgrave.jibs.8400316
21. Chui, A. C. W., Titman, S., & Wei, K. C. J. (2010). Individualism and Momentum around the World. The Journal of Finance, 65(1), 361–392. https://doi.org/10.1111/j.1540-6261.2009.01532.x
22. Claessens, M. S., & Kose, M. A. (2013). Financial crises explanations, types, and implications. https://books.google.com/books?hl=en&lr=&id=d10ZEAAAQBAJ&oi=fnd&pg=PA3&dq=Claessens+%26+Kose,+2013&ots=VhVi3nA6Qm&sig=bXJffxX0wh0ooRGtT40G1OT1rPw
23. Diebold, F. X., & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158–171.
24. Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 987–1007.
25. Fengju, X., & Wubishet, A. (2024). Analysis of the impacts of financial development on economic growth in East Africa: How do the institutional qualities matter? Economic Analysis and Policy, 82, 1177–1189.
26. Galariotis, E., & Karagiannis, K. (2021). Cultural dimensions, economic policy uncertainty, and momentum investing: International evidence. The European Journal of Finance, 27(10), 976–993. https://doi.org/10.1080/1351847X.2020.1782959
27. Gelfand, M. J., Raver, J. L., Nishii, L., Leslie, L. M., Lun, J., Lim, B. C., Duan, L., Almaliach, A., Ang, S., Arnadottir, J., Aycan, Z., Boehnke, K., Boski, P., Cabecinhas, R., Chan, D., Chhokar, J., D’Amato, A., Subirats Ferrer, M., Fischlmayr, I. C., … Yamaguchi, S. (2011). Differences Between Tight and Loose Cultures: A 33-Nation Study. Science, 332(6033), 1100–1104. https://doi.org/10.1126/science.1197754
28. Gorodnichenko, Y., & Roland, G. (2017). Culture, institutions, and the wealth of nations. Review of Economics and Statistics, 99(3), 402–416.
29. Hofstede, G. (1980). Culture and Organizations. International Studies of Management & Organization, 10(4), 15–41. https://doi.org/10.1080/00208825.1980.11656300
30. Hofstede, G., & Minkov, M. (2010). Long- versus short-term orientation: New perspectives. Asia Pacific Business Review, 16(4), 493–504. https://doi.org/10.1080/13602381003637609
31. Jiang, G., Qiao, G., Wang, L., & Ma, F. (2024). Hybrid forecasting of crude oil volatility index: The cross-market effects of stock market jumps. Journal of Forecasting, 43(6), 2378–2398. https://doi.org/10.1002/for.3132
32. Khan, M. N., Fifield, S. G. M., & Power, D. M. (2024). The impact of the COVID 19 pandemic on stock market volatility: Evidence from a selection of developed and emerging stock markets. SN Business & Economics, 4(6), 63. https://doi.org/10.1007/s43546-024-00659-w
33. Kutan, A., Laique, U., Qureshi, F., Rehman, I. U., & Shahzad, F. (2021). A survey on national culture and corporate financial decisions: Current status and future research. International Journal of Emerging Markets, 16(7), 1234–1258.
34. Kwok, C. C. Y., & Tadesse, S. (2006). National culture and financial systems. Journal of International Business Studies, 37(2), 227–247. https://doi.org/10.1057/palgrave.jibs.8400188
35. La Porta, R., Lopez‐De‐Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal Determinants of External Finance. The Journal of Finance, 52(3), 1131–1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x
36. La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and Finance. Journal of Political Economy, 106(6), 1113–1155. https://doi.org/10.1086/250042
37. Levine, M. R. (2021). Finance, growth, and inequality. International Monetary Fund. https://books.google.com/books?hl=en&lr=&id=jvM_EAAAQBAJ&oi=fnd&pg=PA2&dq=In+modern+economies,+financial+markets+are+particularly+important+because+they+turn+savings+into+useful+investments,+help+with+capital+allocation,+and+give+people+ways+to+share+risk+and+find+prices+(Levine,+2005).+&ots=Tnipyz6I2Y&sig=Fe3NR6PrlWnKEKbNTYrnctYBBO4
38. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688–726.
39. Levine, R. (2005). Finance and growth: Theory and evidence. Handbook of Economic Growth, 1, 865–934.
40. Levine, R., & Zervos, S. (1998). Stock markets, banks, and economic growth. American Economic Review, 537–558.
41. Li, K., Griffin, D., Yue, H., & Zhao, L. (2013). How does culture influence corporate risk-taking? Journal of Corporate Finance, 23, 1–22.
42. Li, K., & Jiang, X. (2024). China’s Stock Market under COVID-19: From the Perspective of Behavioral Finance. International Journal of Financial Studies, 12(3), 70. https://doi.org/10.3390/ijfs12030070
43. Licht, A. N., Goldschmidt, C., & Schwartz, S. H. (2005). Culture, law, and corporate governance. International Review of Law and Economics, 25(2), 229–255.
44. Mazouz, K., Wu, Y., Ebrahim, R., & Sharma, A. (2023). Dividend policy, systematic liquidity risk, and the cost of equity capital. Review of Quantitative Finance and Accounting, 60(3), 839–876. https://doi.org/10.1007/s11156-022-01114-3
45. Nasution, L. N., Suhendi, S., Rusiadi, R., Rangkuty, D. M., & Abdiyanto, A. (2022). Covid-19 Pandemic: Impact on Economic Stability In 8-Em Muslim Countries. Atestasi: Jurnal Ilmiah Akuntansi, 5(1), 336–352.
46. North, D. C. (1991). Institutions. Journal of Economic Perspectives, 5(1), 97–112. https://doi.org/10.1257/jep.5.1.97
47. O’Donnell, N., Shannon, D., & Sheehan, B. (2024). The impact of monetary policy interventions on banking sector stocks: An empirical investigation of the COVID-19 crisis. Financial Innovation, 10(1), 44. https://doi.org/10.1186/s40854-023-00575-2
48. Pástor, Ľ., & Stambaugh, R. F. (2003). Liquidity Risk and Expected Stock Returns. Journal of Political Economy, 111(3), 642–685. https://doi.org/10.1086/374184
49. Rieger, M. O., Wang, M., & Hens, T. (2015). Risk Preferences Around the World. Management Science, 61(3), 637–648. https://doi.org/10.1287/mnsc.2013.1869
50. Schwert, G. W. (1989). Why Does Stock Market Volatility Change Over Time? The Journal of Finance, 44(5), 1115–1153. https://doi.org/10.1111/j.1540-6261.1989.tb02647.x
51. Stulz, R. M., & Williamson, R. (2003). Culture, openness, and finance. Journal of Financial Economics, 70(3), 313–349.
52. Vera-Valdés, J. E. (2022). The persistence of financial volatility after COVID-19. Finance Research Letters, 44, 102056. https://doi.org/10.1016/j.frl.2021.102056
53. Whaley, R. E. (2009). Understanding the VIX. Journal of Portfolio Management, 35(3), 98–105.
Published
2026-01-08
How to Cite
Chevola, L. M. S., & Yamin, X. (2026). Cultural Values and Retail Investor Behavior under Market Volatility: A Cross-Country Panel Analysis (2002–2021). European Scientific Journal, ESJ, 49, 1. Retrieved from https://eujournal.org/index.php/esj/article/view/20504
Section
ESI Preprints
Copyright (c) 2026 Luz Maria Sipi Chevola, Xie Yamin
This work is licensed under a Creative Commons Attribution 4.0 International License.
