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Financial Deregulation And Volatility In Emerging Equity Markets

Author

Listed:
  • William Miles

    () (Department of Economics, Wichita State University)

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.

Suggested Citation

  • William Miles, 2002. "Financial Deregulation And Volatility In Emerging Equity Markets," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 113-126, December.
  • Handle: RePEc:jed:journl:v:27:y:2002:i:2:p:113-126
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    File URL: http://www.jed.or.kr/full-text/27-2/miles.PDF
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
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    4. Eduardo Borensztein & R. Gaston Gelos, 2003. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-3.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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 Autocorrelation]
      ," MPRA Paper 54630, University Library of Munich, Germany, revised 2013.
    4. Duc Khuong Nguyen, 2010. "La dynamique de la volatilité boursière autour de l'ouverture des marchés de capitaux," Economie & Prévision, La Documentation Française, vol. 0(1), pages 65-82.
    5. 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.
    6. 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.
    7. Caglayan, Mustafa & Demir, Firat, 2014. "Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation," World Development, Elsevier, vol. 54(C), pages 204-219.
    8. Mustafa Caglayan & Firat Demir, 2011. "Firm productivity, exchange rate movements, sources of finance and export orientationInventories and sales uncertainty," Working Papers 2011004, The University of Sheffield, Department of Economics, revised Feb 2011.
    9. repec:bor:iserev:v:11:y:2011:i:42:p:35-58 is not listed on IDEAS
    10. Mohamed El Hedi Arouri & Mondher Bellalah & Duc Khuong Nguyen, 2010. "The comovements in international stock markets: new evidence from Latin American emerging countries," Applied Economics Letters, Taylor & Francis Journals, vol. 17(13), pages 1323-1328.
    11. repec:bor:iserev:v:11:y:2011:i:42:p:19-34 is not listed on IDEAS
    12. Duc NGUYEN, 2008. "An empirical analysis of structural changes in emerging market volatility," Economics Bulletin, AccessEcon, vol. 6(10), pages 1-10.
    13. repec:bor:iserev:v:11:y:2011:i:42:p:1-18 is not listed on IDEAS
    14. 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.
    15. repec:ebl:ecbull:v:6:y:2008:i:10:p:1-10 is not listed on IDEAS

    More about this item

    Keywords

    International Finance; International Financial Markets;

    JEL classification:

    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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