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

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

    Research output: Contribution to journalArticleScientificpeer-review

    74 Citations (Scopus)

    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
    Pages (from-to)509-521
    JournalJournal of Banking and Finance
    Volume34
    Issue number3
    Publication statusPublished - 2010

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