This study aims to investigate the relationship between regulatory quality (RQ), global power (GP), and the co-movements of stock markets. Previous studies have investigated various factors that influence stock market correlations; however, the relationship between RQ, GP, and stock market correlations has not been investigated thus far. To investigate this relationship, we created an index of correlations of each stock market with other stock markets, in G20 countries. Our empirical results indicate that RQ and GP have a positive and statistically significant relationship with stock market correlations in G20 nations. This study is the first to establish a relationship between RQ, GP, and changes in relative stock market performance. In the past, changes in relative stock market returns were mainly attributed to the economic factors and volatility of the underlying stock markets. This study makes an important contribution to the body of knowledge by developing a theoretical argument to show how a change in RQ and or GP influences changes in stock market correlations via changes in relative risk premia and returns. The findings of the study have several implications for the development of regulations and laws because RQ influences stock market co-movements, and will also have implications for investors who aim to construct globally diversified portfolios.