The degree of financial liberalization and aggregated stock-return volatility in emerging markets

Date
2010
Authors
Umutlu, M.
Akdeniz, L.
Altay-Salih, A.
Advisor
Instructor
Source Title
Journal of Banking and Finance
Print ISSN
0378-4266
Electronic ISSN
Publisher
Elsevier
Volume
34
Issue
3
Pages
509 - 521
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Abstract

In this study, we address whether the degree of financial liberalization affects the aggregated total volatility of stock returns by considering the time-varying nature of financial liberalization. We also explore channels through which the degree of financial liberalization impacts aggregated total volatility. We document a negative relation to the degree of financial liberalization after controlling for size, liquidity, country, and crisis effects, especially for small and medium-sized markets. Moreover, the degree of financial liberalization transmits its negative impact on aggregated total volatility through aggregated idiosyncratic and local volatilities. Overall, our results provide evidence in favor of the view that the broadening of the investor base due to the increasing degree of financial liberalization causes a reduction in the total volatility of stock returns.

Course
Other identifiers
Book Title
Keywords
Emerging markets, Financial liberalization, Market integration, Return volatility, Volatility decomposition
Citation
Published Version (Please cite this version)