The effect of financial liberalization on stock-return volatility in GCC markets
AbstractWe estimate a cross-sectional time-series model to assess the impact of equity market liberalization and capital account openness on individual-firm stock return volatility in GCC (Gulf Cooperation Council) markets. We document evidence that international participation in local trades has no impact on idiosyncratic volatility and a rising impact on total volatility. In contrast, capital account openness significantly reduces total volatility, especially for stocks with low foreign ownership limits. Moreover, we find that the effect of restrictions on capital account transactions is stronger on capital inflows than outflows and on residents than nonresidents. The findings continue to hold for portfolio return volatility. Our results are important for GCC policy makers, portfolio managers, as well as academics.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 21 (2011)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/intfin
Conditional volatility; Financial liberalization; GCC markets;
Find related papers by JEL classification:
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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