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Financial Liberalisation and Breaks in Stock Market Volatility: Evidence from East Asia

Author

Listed:
  • Panicos Demetriades

    (University of Leicester)

  • Michaeil Karoglou

    (University of Leicester)

  • Siong Hook Law

    (University Putra Malaysia)

Abstract

This paper examines the short and medium term impact of financial reforms on stock market volatility in five East Asian emerging markets. Several newly proposed tests are employed to identify and verify the number and timing of structural breaks in the variance dynamics. The detected breakdates do not correspond to official liberalisation dates. The magnitude and direction of the change in volatility is estimated using parametric and non-parametric techniques. Our findings suggest that by taking into account the possibility of multiple breaks, a richer evolution of volatility is obtained than by focusing on official liberalisation dates. We also show that focussing on official liberalisation dates results in inaccurate inference

Suggested Citation

  • Panicos Demetriades & Michaeil Karoglou & Siong Hook Law, 2007. "Financial Liberalisation and Breaks in Stock Market Volatility: Evidence from East Asia," Money Macro and Finance (MMF) Research Group Conference 2006 162, Money Macro and Finance Research Group.
  • Handle: RePEc:mmf:mmfc06:162
    as

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    File URL: http://repec.org/mmf2006/up.26720.1155116117.pdf
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    References listed on IDEAS

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    1. Utpal Bhattacharya & Hazem Daouk, 2002. "The World Price of Insider Trading," Journal of Finance, American Finance Association, vol. 57(1), pages 75-108, February.
    2. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-799, May.
    3. Nilsson, Birger, 2002. "Financial Liberalization and the Changing Characteristics of Nordic Stock Returns," Working Papers 2002:4, Lund University, Department of Economics.
    4. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", pages 125-132.
    5. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-255, January.
    6. Kim, E Han & Singal, Vijay, 2000. "Stock Market Openings: Experience of Emerging Economies," The Journal of Business, University of Chicago Press, vol. 73(1), pages 25-66, January.
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    Cited by:

    1. Gregory James & Michail Karoglou, 2010. "Financial liberalization and stock market volatility: the case of Indonesia," Applied Financial Economics, Taylor & Francis Journals, pages 477-486.

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