We examine the time variation of R2s, the comovement of stock returns with local market return, separately for countries with good (GGOV) and bad governance (BGOV) based on 44 countries from 1995 to 2019. Average R2 is larger for BGOV than for GGOV before the global financial crisis in 2008, but the difference decreases and finally reverses in 2010s. The convergence and reversal arise because R2 decreases more in BGOV than in GGOV as openness, foreign investment, and the number of internet users increase. Further analyses show that firm-specific information is infused into stock prices by informed foreign institutions and communication through internet in BGOV. Overall, our paper sheds new lights on the role of globalization and information technology to explain the variation of R2s across countries and over time.

Keywords: Asset pricing, R2, Comovement, International stock market
JEL Classification: G12, G14, G15, G38