Domestic Versus International Integration in the Process of Financial Liberalisation

CUBS Faculty of Finance Working Paper No. 04

Cass Business School Research Paper

45 Pages Posted: 17 Oct 2001

See all articles by Fatma Taskin

Fatma Taskin

Bilkent University - Department of Economics

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Date Written: October 2001

Abstract

Emerging markets literature reveals that capital market liberalisation transforms segmented stock markets into more integrated ones. However further impact should be expected on the dynamics of the rest of the domestic economy and its relation to stock markets. This study presents evidence to that effect. While existing literature emphasises the world integration aspect of the capital market liberalisation through reductions in the cost of equity, this study shows that the significant change after liberalisation was the emergence of world returns as an influential factor on other economic fundamentals. Information content of world returns influenced emerging market returns prior to capital market liberalisation and this relation continued after capital market liberalisation. What is new after liberalisation is the influence of world returns on the dynamics of the domestic economy as a whole and its relation to stock returns.

Keywords: Financial liberalisation, Emerging markets, Economic fundamentals, Granger causality

JEL Classification: G10, G15, C23, E44, F36

Suggested Citation

Taskin, Fatma and Muradoglu, Yaz Gulnur, Domestic Versus International Integration in the Process of Financial Liberalisation (October 2001). CUBS Faculty of Finance Working Paper No. 04; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=286880 or http://dx.doi.org/10.2139/ssrn.286880

Fatma Taskin

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey
+90 312 290 1314 (Phone)
+90 312 290 266 5140 (Fax)

Yaz Gulnur Muradoglu (Contact Author)

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

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