Financial liberalization, foreign equity investment and volatility in emerging stock exchanges
Author(s)
Advisor
Akdeniz, LeventDate
2008Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
In this thesis, the effects of financial liberalization and foreign equity
investment on the return volatility of stocks in emerging stock exchanges are
investigated. At the aggregate level analyses, it is shown that the degree of
financial liberalization has an increasing impact on the aggregated total
volatility of stocks. The analysis of the components of the aggregated total
volatility indicates that that the degree of financial liberalization impacts the
aggregated total volatility through aggregated idiosyncratic and local volatility.
In the second part of the aggregate level analyses, the effect of foreign equity
investment on the return volatility of stocks is investigated by using foreign
equity flow data which is available for İstanbul Stock Exchange. It is found
that foreign equity inflow and outflow have asymmetric effects on average
stock-return volatility. While an inflow has a decreasing impact on aggregated
stock return volatility, an outflow has an increasing impact. At the firm level
analysis, the time-series variation in return volatility of stocks that are crosslisted
on US exchanges is examined. Unlike previous studies in cross-listing
literature, return volatility is analyzed using conditional heteroscedasticity
models. It’s found that firms’ exposure to risks such as local and global market
betas remain unchanged after cross-listing. Moreover, no change in the
dynamics of the volatility of cross-listed stocks is detected. Furthermore, it’s
shown that the mean level of conditional variance is not affected by the
decision to cross-list. Thus, it is concluded that share holders of cross-listed
stocks are not subject to adverse volatility effects.
Keywords
financial liberalizationforeign equity investment
stock-return volatility
ADR listing
emerging stock exchanges