Why volatility of returns differs across markets after liberalization? Do institution and market characteristics matters

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1 Citation (Scopus)

Abstract

This paper investigates the impact of financial market liberalization on stock returns' volatility for thirty emerging markets by thoroughly looking into the various market characteristics and institutional quality. Using a variant of the GARCH models, the results show that stock market volatility decreases or remains unchanged for countries that generally characterized by better quality institutions and favourable market characteristics. However, volatility increases for countries with low quality markets and institutions. The findings suggest that it is important for emerging countries to prepare better markets and institutions as a prerequisite for financial liberalization. Failure to do so might result in excess financial volatility and the consequent real effects for their economies.

Original languageEnglish
Pages (from-to)1-28
Number of pages28
JournalInternational Journal of Economics and Management
Volume4
Issue number1
Publication statusPublished - Jun 2010

Fingerprint

Markets and institutions
Market characteristics
Liberalization
Stock market volatility
Financial markets
Stock return volatility
Emerging countries
GARCH model
Financial liberalization
Institutional quality
Emerging markets
Market liberalization

Keywords

  • Emerging market economies
  • Market characteristics
  • Quality of institutions
  • Stock market liberalization
  • Stock return volatility

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business and International Management
  • Strategy and Management

Cite this

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abstract = "This paper investigates the impact of financial market liberalization on stock returns' volatility for thirty emerging markets by thoroughly looking into the various market characteristics and institutional quality. Using a variant of the GARCH models, the results show that stock market volatility decreases or remains unchanged for countries that generally characterized by better quality institutions and favourable market characteristics. However, volatility increases for countries with low quality markets and institutions. The findings suggest that it is important for emerging countries to prepare better markets and institutions as a prerequisite for financial liberalization. Failure to do so might result in excess financial volatility and the consequent real effects for their economies.",
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