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Financial Deregulation And Volatility In Emerging Equity Markets

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Author Info

  • William Miles

    ()
    (Department of Economics, Wichita State University)

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    Abstract

    The opening of stock markets in Asian, Latin American and other developing countries over the past decade has been widely praised, as there are many potential benefits of financial integration with the rest of the world. However, the turmoil in emerging markets since the Mexican, Asian, and Russian crises have led policy makers and investors to wonder whether greater financial openness may actually increase the volatility of stock returns. The variance of share returns has important implications for determining portfolio allocation as well as the cost of capital, and if variability rises it may counteract some of the benefits of openness. Theory on the effects of market opening on volatility has been ambiguous, and empirical work has yielded conflicting results. This paper examines the issue by testing for a larger variety of reforms than have been studied before. Moreover, the data set employed spans important episodes such as the Asian, Russian and Brazilian devaluations which have occurred since previous empirical studies were written. Results indicate that reform has a statistically significant impact in almost three fifths of the emerging markets surveyed, but more often than not, the effect is actually to raise, rather than lower the volatility of stock returns.

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    File URL: http://www.jed.or.kr/full-text/27-2/miles.PDF
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    Bibliographic Info

    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 27 (2002)
    Issue (Month): 2 (December)
    Pages: 113-126

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    Handle: RePEc:jed:journl:v:27:y:2002:i:2:p:113-126

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    Related research

    Keywords: International Finance; International Financial Markets;

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    References

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    1. De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
    2. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
    3. Gaston Gelos & Eduardo Borensztein, 2000. "A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds," IMF Working Papers 00/198, International Monetary Fund.
    4. Reinhart, Vincent R, 2000. "How the Machinery of International Finance Runs with Sand in Its Wheels," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 74-85, February.
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    Cited by:
    1. Semra Karacaer & Yusuf Volkan Topuz, 2009. "The Effect of the Change in the Exchange Rate of US Dollars on the Market Index of Developing Countries: January 2001– November 2006 Period," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 11(42), pages 1-18.
    2. Demir, Firat & Caglayan, Mustafa, 2012. "Firm Productivity, Exchange Rate Movements, Sources of Finance and Export Orientation," MPRA Paper 37397, University Library of Munich, Germany.
    3. Berna Kirkulak & Çagnur Kaytmaz Balsari, 2009. "Inflation Accounting and Stock Returns: Evidence From Istanbul Stock Exchange (ISE)," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 11(42), pages 19-34.
    4. Mohamed El Hedi Arouri & Mondher Bellalah & Duc Khuong Nguyen, 2008. "The Comovements In International Stock Markets: New Evidence From Latin American Emerging Countries," Working Papers halshs-00202943, HAL.
    5. Duc NGUYEN, 2008. "An empirical analysis of structural changes in emerging market volatility," Economics Bulletin, AccessEcon, vol. 6(10), pages 1-10.
    6. Duc Khuong Nguyen & Mondher Bellalah, 2007. "Testing for Structural Breaks and Dynamic Changes in Emerging Market Volatility," Working Papers 02, Development and Policies Research Center (DEPOCEN), Vietnam.
    7. Hasan F. Baklaci, 2009. "An Empirical Examination of Bilateral Interaction Between Foreign Investors’ Trading and Returns in Turkey," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 11(42), pages 35-58.
    8. repec:bor:iserev:v:11:y:2011:i:42:p:1-18 is not listed on IDEAS
    9. repec:ebl:ecbull:v:6:y:2008:i:10:p:1-10 is not listed on IDEAS
    10. repec:bor:iserev:v:11:y:2011:i:42:p:19-34 is not listed on IDEAS
    11. Ghassan, Hassan B. & Alhajhoj, Hassan R., 2012. "أثر تحرير سوق رأس المال على التذبذب في سوق الأسهم السعودي
      [Effect of Capital Market Liberalization on Volatility of TASI]
      ," MPRA Paper 54470, University Library of Munich, Germany, revised 2012.
    12. repec:bor:iserev:v:11:y:2011:i:42:p:35-58 is not listed on IDEAS
    13. Ghassan, Hassan B. & Alhajhoj, Hassan R., 2013. "اختبار أثر التقلب العنقودي لمؤشر تداول باستخدام الارتباط الذاتي المدحرج
      [Test of Clustering Volatility of TASI index using Rolling Auto
      ," MPRA Paper 54630, University Library of Munich, Germany, revised 2013.

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