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Financial Deregulation And Volatility In Emerging Equity Markets

Listed author(s):
  • William Miles

    ()

    (Department of Economics, Wichita State University)

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    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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    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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    5. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    6. 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.
    7. 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.
    8. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
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