Financial liberalization and stock market volatility in selected developing countries

Kassimatis, Konstantinos

doi:10.1080/09603100010001937

Cited by 51 publications

(30 citation statements)

References 8 publications

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“…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.…”

Section: Financial Liberalization and Stock Market Developmentmentioning

confidence: 54%

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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Section: Financial Liberalization and Stock Market Developmentmentioning

confidence: 54%

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

Nguyen¹

2017

IJMS

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“…Bekaert & Harvey (1997) demonstrated that in 13 of their 17 sample countries, liberalization of equity markets led to a substantial drop in volatility; this was especially significant in 5 emerging markets (Taiwan, Mexico, Portugal, Argentina, and Brazil), after controlling for potential factors influencing the time-varying volatility. Kassimatis (2002) demonstrated that volatility was reduced after relaxing financial markets in five out of six sample developing countries. The results were partly consistent with those of Bekaert & Harvey (1997).…”

Section: Liberalization In Emerging Marketsmentioning

confidence: 98%

Factors Influencing Equity Return Correlations between China’s Pairs of A- and B-Share Markets: Effect of QFII’s Implementation

Hsiao¹,

Tu²,

Chen³

2017

IJFR

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This paper was intended to examine factors influencing the correlations between A-and B-shares of individual firms, and explore the effects of Qualified Foreign Institutional Investor's (QFII) implementation on correlations. The empirical results show that interest rate differential, relative turnover rate, relative return volatility, and market sentiment had impacts on correlation both before and after the QFII's implementation. After its implementation, correlations became more sensitive to premium, relative turnover rate and market sentiment. Furthermore, the estimated constant term for overall market correlation became more negative (raw values from -0.3413 to -0.8815), indicating an increasing correlation between A-and B-shares' returns. The policy implications are that much benefit of diversification into emerging markets such as paired A-and B-shares can be accomplished, together with taking several influential factors into account.

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“…Researchers also find stock market volatility transmission between friendly countries of different regions (e.g., Pakistan and China) having economic links [2]. They find evidence of reduced volatility after implementation of financial liberalization policies in Pakistan [3]. Some suggest that that stock trades' volume causes volatility [4,5] and an asymmetrical volatility is due to response between volume and price [6].…”

Section: Literature Reviewmentioning

confidence: 99%

What Causes Stock Market Volatility in Pakistan? Evidence from the Field

Ghufran

Awan

Khakwani³

et al. 2016

Economics Research International

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We examined the presence of volatility at the Karachi Stock Exchange (recently changed the name to Pakistan Stock Exchange) (KSE) by fitting Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model to 25 years' index data. We found that the ARCH effects are present in the data indicating the stock market cluster volatility during the period under study. We found persistent high volatility in the stock market and presence of negative leverage effect. Moreover, we tried to identify the factors causing stock market volatility by collecting and analyzing the primary data obtained from 246 individual investors of stock market and 28 brokers listed with KSE. Our results show that investors consider political situation as the most important factor causing turbulence in the stock market. Interviews with the brokers also confirmed this. The second most important factor identified by investors is the herd behavior among investors that results in over-and underpricing of stocks and the overall market shows a volatile behavior. Our findings suggest that individual investor's behavioral dimensions of involvement, risk attitude, and overconfidence are significantly associated with factors causing market volatility.

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Financial liberalization and stock market volatility in selected developing countries

Cited by 51 publications

References 8 publications

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

Factors Influencing Equity Return Correlations between China’s Pairs of A- and B-Share Markets: Effect of QFII’s Implementation

What Causes Stock Market Volatility in Pakistan? Evidence from the Field

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