The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets

M. Umutlu, L. Akdeniz, A.A. Salih

Research output: Working paperDiscussion paperOther research output

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages58
Volume2009-67
Publication statusPublished - 2009

Publication series

NameCentER Discussion Paper
Volume2009-67

Fingerprint

Stock return volatility
Emerging markets
Financial liberalization
Stock returns
Investors
Idiosyncratic volatility
Time-varying
Liquidity
Local volatility

Keywords

  • return volatility
  • financial liberalization
  • market integration
  • volatility decomposition
  • emerging markets

Cite this

Umutlu, M., Akdeniz, L., & Salih, A. A. (2009). The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets. (CentER Discussion Paper; Vol. 2009-67). Tilburg: Finance.
Umutlu, M. ; Akdeniz, L. ; Salih, A.A. / The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets. Tilburg : Finance, 2009. (CentER Discussion Paper).
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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.",
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Umutlu, M, Akdeniz, L & Salih, AA 2009 'The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets' CentER Discussion Paper, vol. 2009-67, Finance, Tilburg.

The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets. / Umutlu, M.; Akdeniz, L.; Salih, A.A.

Tilburg : Finance, 2009. (CentER Discussion Paper; Vol. 2009-67).

Research output: Working paperDiscussion paperOther research output

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Umutlu M, Akdeniz L, Salih AA. The Degree of Financial Liberalization and Aggregated Stock-return Volatility in Emerging Markets. Tilburg: Finance. 2009. (CentER Discussion Paper).