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Market liberalization and volatility of returns in emerging markets: The case of Qatar Exchange (QSC)

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  • Ritab Al-Khouri
  • Abdulkhader Abdallah
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    Abstract

    Purpose – The purpose of this paper is to examine whether stock market liberalization creates excess stock return volatility in the Qatar Exchange (QSC). Design/methodology/approach – The study utilizes two methods, simple analysis of variance and the EGARCH model with dummy variables. Findings – Results reveal no change in market volatility following the partial removal of the restrictions on foreign participation. Results suggest, however, that the degree of persistence in volatility is high, which implies that once volatility increases it remains high over a long run. In addition, conditional volatility tends to rise when the absolute value of the standardized residuals was large. While, contrary to what has been found in the literature, the return volatility seems to be symmetric. Research limitations/implications – The finding of volatility persistence and clustering might imply an inefficient stock market. Therefore, policy makers should emphasize and direct their attention toward increasing the efficiency of the stock market. Practical implications – Being able to make predictions about financial market volatility is of special importance to investors and policy makers since it makes available to them a measure of risk exposure in their investments and decisions. Originality/value – This paper provides a contribution to the empirical literature on stock market volatility. It is the only study, to the authors' knowledge, that investigates the issue of QSC liberalization and volatility. The authors believe that QSC has its own unique characteristics, and the results of the study depend mainly on the market's specific conditions, the quality of its financial institutions and the extent of financial liberalization obtained. JEL classification: G11, G12, G13

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Islamic and Middle Eastern Finance and Management.

    Volume (Year): 5 (2012)
    Issue (Month): 2 (June)
    Pages: 106-115

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    Handle: RePEc:eme:imefpp:v:5:y:2012:i:2:p:106-115

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    Related research

    Keywords: EGARCH; Emerging markets; Foreign participation; Liberalization; Qatar; Qatar Exchange; Volatility;

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    References

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    1. Robert F. Engle & Victor K. Ng, 1991. "Measuring and Testing the Impact of News on Volatility," NBER Working Papers 3681, National Bureau of Economic Research, Inc.
    2. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 307-333.
    3. Susmel, Raul, 2000. "Switching Volatility in Private International Equity Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(4), pages 265-83, October.
    4. Konstantinos Kassimatis, 2002. "Financial liberalization and stock market volatility in selected developing countries," Applied Financial Economics, Taylor & Francis Journals, vol. 12(6), pages 389-394.
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    6. Cunado, Juncal & Gomez Biscarri, Javier & Perez de Gracia, Fernando, 2006. "Changes in the dynamic behavior of emerging market volatility: Revisiting the effects of financial liberalization," Emerging Markets Review, Elsevier, vol. 7(3), pages 261-278, September.
    7. Farooq Malik & Bradley Ewing & James Payne, 2005. "Measuring volatility persistence in the presence of sudden changes in the variance of Canadian stock returns," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 1037-1056, August.
    8. Kim, E Han & Singal, Vijay, 2000. "Erratum [Stock Market Openings: Experience of Emerging Economies]," The Journal of Business, University of Chicago Press, vol. 73(4), pages na, October.
    9. Geert Bekaert & Campbell R. Harvey, 1995. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
    10. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    11. C. Alan Garner, 1988. "Has the stock market crash reduced consumer spending?," Economic Review, Federal Reserve Bank of Kansas City, issue Apr, pages 3-16.
    12. Kim, E Han & Singal, Vijay, 2000. "Stock Market Openings: Experience of Emerging Economies," The Journal of Business, University of Chicago Press, vol. 73(1), pages 25-66, January.
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