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The Impact of Foreign Equity Ownership on Emerging Market Share Price Volatility

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  • Mark Coppejans
  • Ian Domowitz

Abstract

We ask whether foreign equity ownership affects the stability of share prices in an emerging economy. We address the effect of ownership restrictions exogenously imposed on stock ownership and the impact of introducing or widening foreign ownership through cross‐listing. A methodology for variance ratio analysis is introduced that corrects for liquidity and volume differences across stock series experiencing different degrees of foreign ownership. We find that foreign ownership does not affect volatility in the absence of cross‐listing. Foreign ownership introduced or accompanied by cross‐listing of a stock series raises the variance of returns. This effect is found to operate in part through increases in volume traded on the domestic market following the listing, and through an identifiable increase in the volatility of information net of volume effects.

Suggested Citation

  • Mark Coppejans & Ian Domowitz, 2000. "The Impact of Foreign Equity Ownership on Emerging Market Share Price Volatility," International Finance, Wiley Blackwell, vol. 3(1), pages 95-122, April.
    • Handle: RePEc:bla:intfin:v:3:y:2000:i:1:p:95-122
    DOI: 10.1111/1468-2362.00043
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    Citations

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    Cited by:

    1. Asli Bayar & Zeynep Onder, 2005. "Liquidity and price volatility of cross-listed French stocks," Applied Financial Economics, Taylor & Francis Journals, vol. 15(15), pages 1079-1094.
    2. Muhammad Afaq Haider & Muhammad Asif Khan & Shamila Saddique & Shujahat Haider Hashmi, 2017. "The Impact of Stock Market Performance on Foreign Portfolio Investment in China," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 460-468.
    3. Ian Domowitz & Jack Glen & Ananth Madhavan, 2001. "Liquidity, Volatility and Equity Trading Costs Across Countries and Over Time," International Finance, Wiley Blackwell, vol. 4(2), pages 221-255.
    4. Bley, Jorg & Saad, Mohsen, 2011. "The effect of financial liberalization on stock-return volatility in GCC markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 662-685.
    5. Ahmed, Walid M.A., 2017. "The impact of foreign equity flows on market volatility during politically tranquil and turbulent times: The Egyptian experience," Research in International Business and Finance, Elsevier, vol. 40(C), pages 61-77.

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