Financial Liberalization and the Changing Characteristics of Nordic Stock Returns
AbstractThis paper uses a multivariate regime-switching framework to investigate and endogenously date changes in return characteristics on the four largest Nordic stock markets. We find that the deregulated time-period, specifically after 1982, is associated with higher expected return, higher volatility, stronger links with international stock markets and higher correlation between the Nordic stock markets. This higher correlation is mainly driven by common higher correlation with international stock returns and not by higher correlation between country specific components of return. Further, our evidence support the argument that market liberalization creates excess volatility but also that Nordic investors are more than compensated for this by higher expected returns and the opportunity to cross-border diversification after liberalization.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2002:4.
Length: 30 pages
Date of creation: 15 Feb 2002
Date of revision:
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
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stock market liberalization; excess volatility; portfolio diversification; multivariate regime-switching models; simulated annealing;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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