An Empirical Examination of Financial Liberalization and the Efficiency of Emerging Market Stock Prices

Kawakatsu, Hiroyuki; Morey, Matthew R.

doi:10.1111/j.1475-6803.1999.tb00702.x

Cited by 79 publications

(47 citation statements)

References 20 publications

(50 reference statements)

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“…Huang (1995) have studied the random walk hypothesis for 8 Asian countries and Japan using Lo & MacKinlay variance ratio test for the period 1984-1998. Kawakatsu and Morey (1999) have performed Unit root test and multiple variance ratio tests on 16 emerging markets for the period 1976-1997. Malliaropulos and Priestley (1999) used test and Bootstrap methodology on Southeast Asian markets for the period 1988-1995.…”

Section: Literature Reviewmentioning

confidence: 99%

Market Efficiency of ASEAN Stock Markets

Shaik

Maheswaran

2017

Asian Economic and Financial Review

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In this paper, we examine the stock market efficiency of the members of the Association of South East Asian Nations (ASEAN). We use the conventional individual variance ratio tests like the MacKinlay (1988) test, Choi (1999) test, Wright (2000) test andChen andDeo (2006)) test to check for the efficient market hypothesis in these markets.We also perform the spectral shape test of Durlauf (1991) and Average exponential test as in Andrews and Ploberger (1996) Contribution/ OriginalityThis study contributes to the existing literature of the stock market efficiency of the member nations of the ASEAN region by employing individual variance ratio tests, spectral shape test and Average exponential test. This study documents that stock indices of Cambodia, Lao and Singapore are weak form efficient.

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Section: Literature Reviewmentioning

confidence: 99%

Market Efficiency of ASEAN Stock Markets

Shaik

Maheswaran

2017

Asian Economic and Financial Review

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“…Kawakatsu & Morey (1999) illustrate that there is no significant difference in stock market before and after actual liberalization. Umutlu, Akdeniz, & Altay-Salih (2010) show strong evidence to prove that there is negative influence on performance of small and medium markets as well as reducing stock returns.…”

Section: Financial Liberalization and Stock Market Developmentmentioning

confidence: 87%

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

Nguyen¹

2017

IJMS

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The Literature Review Financial Liberalization and Stock Market DevelopmentFinancial liberalization plays an important role on developing equity market in emerging countries. Henry (2000) conducts the research on the sample of 12 emerging markets and gives and strong evidence to prove that equity index witnesses the significant abnormal return after government opens capital market. By using some control variables like world stock return, macroeconomic factors and concurrent economic reforms, this paper suggests that cost of capital will be reduced by sharing risks between foreign and domestic investors. This is one big advantage that stock market liberalization brings to emerging countries. In these markets, asymmetric information as well as investment experience is always prevalent problem for individual investors. That is a reason why foreign sector plays an important role on leading the movement of market. With the same conclusion, Bekaert & Harvey (2000) confirm that capital market integration reduces cost of capital as well as increases economic growth. Moreover, the reason for foreign investors to be attracted by emerging markets is to seek diversification for their portfolio. Stulz (1999) gives two channels to reduce cost of capital. First, financial liberalization decreases discount rate and second, expected cash flow increases due to increase in monitoring of management and shareholders. However, this study also points out that the significant reduction in cost premium is very small because of home bias effect. Choosing which country and which company to invest is complicated procedure and it depends on many factors. Aggarwal, Klapper & Wysocky (2005) reveal that professional foreign investors tend to select the firms basing on not only their financial performance but also transparency and disclosure. The study of Levine & Zervos (1998) indicates that stock market becomes bigger with higher liquidity after government implements international integration policy in finance. The regulatory indicators become better and equity market becomes more efficient and informational. The easy access to information by domestic and foreign companies associates positively to stock market development. Kassimatis (2002) conducts the research in six countries: Argentina, India, Pakistan, Philippines, South Korea and Taiwan, which confirms that openness of financial market reduces its volatility. Several recent empirical researches also present the positive relationship between financial integration and equity market development. Cajueiro, Gogas, & Tabak (2009) reveal that Greek stock exchange receives many benefits from this phenomenon such as reducing cost of capital, improving market efficiency and economic environment.By contrast, some studies show opposite view about impact of financial liberalization on equity market. Kawakatsu & Morey (1999) illustrate that there is no significant difference in stock market before and after actual liberalization. Umutlu, Akdeniz, & Altay-Salih (2010) show strong evidence to...

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“…The equity market literature provides number of findings identifying the prevalence high order volatility and price fluctuations in developed and emerging markets (e.g., Richards 1996;Bekaert et al 1998;Kawakatsu, Morey 1999;Harvey et al 2000;Salomons, Grootveld 2003;Yarovaya et al 2016;Sehgal, Garg 2016;etc.). In this regard, comparative analysis with developed equity markets, identifying similar peculiarities among emerging markets with country risk factors like financial, economic and political risks have been examined.…”

Section: Introductionmentioning

confidence: 99%

Stock Returns, Volatility and Mean Reversion in Emerging and Developed Financial Markets

Ahmed

Vveinhardt

Štreimikienė

et al. 2018

Technological and Economic Development of Economy

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Abstract. The objective of this research is to measure and examine volatilities between important emerging and developed stock markets and to ascertain a relationship between volatilities and stock returns. This research paper also analyses the Mean reversion phenomenon in emerging and developed stock markets. For this purpose, seven emerging markets and five developed markets were considered. Descriptive statistics showed that the emerging markets have higher returns with the higher risk-return trade-off. In contrast, developed markets have low annual returns with a low risk-return trade-off. Correlation analysis indicated the significant positive correlation among the developed markets, but emerging and developed markets have shown relatively insignificant correlation. Results of ARCH and GARCH revealed that the value of likelihood statistics ratio is large, that entails the GARCH (1,1) model is a lucrative depiction of daily return pattern, that effectively and efficiently capturing the orderly reliance of volatility. The findings of the study showed that the estimate 'β' coefficients given in conditional variance equation are significantly higher than the 'α' , this state of affair entails that bigger market surprises tempt comparatively small revision in future volatility. Lastly, the diligence of the conditional variance estimated by α + β is significant and proximate to integrated GARCH (1,1) model, thus, this indicates, the existing evidence is also pertinent in order to forecast the future volatility. The results signified that the sum of GARCH (1,1) coefficients for all the equity returns' is less than 1 that is an important condition for mean reversion, as the sum gets closer to 1, hence the Mean reversion process gets slower for all the emerging and developed stock markets.

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An Empirical Examination of Financial Liberalization and the Efficiency of Emerging Market Stock Prices

Cited by 79 publications

References 20 publications

Market Efficiency of ASEAN Stock Markets

Market Efficiency of ASEAN Stock Markets

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

Stock Returns, Volatility and Mean Reversion in Emerging and Developed Financial Markets

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