Market Deregulations, Volatility and Spillover Effects: Experiences from Emerging Stock Markets

Sima Motamen-Samadian, GOVERNANCE AND RISK IN EMERGING AND GLOBAL MARKETS: Centre for the Study of Emerging Markets Series, Palgrave Macmillan October 2005

Posted: 26 Mar 2007

Abstract

This paper investigates the impact of stock market liberalizations on the volatility of emerging markets and volatility spillover effects between these markets and stock markets of the United Stated and Japan. First, our results reinforce previous findings in that emerging markets tend to generate higher volatility than developed markets. Moreover, some of the sudden changes in emerging market volatility appeared to be often associated with financial liberalizations. However, when we explicitly test the relationships between financial liberalization and volatility using regression analysis, we found conflicting results about the sign of financial liberalization effects. Second, we found that stock volatility is substantially transmitted among sample markets, especially between emerging markets of the same geographical location. It is also demonstrated that the multilateral transmission of volatility only increases slightly after liberalization programs. Finally, it is worth notifying that shocks to volatility in emerging markets, rather than those to volatility in the US and Japanese markets constitute a dominant source of return variability in foreign stock markets.

Keywords: International Finance, Financial Liberalizations, Volatility Spillover, Emerging Stock Markets

JEL Classification: F3, G15

Suggested Citation

Nguyen, Duc Khuong, Market Deregulations, Volatility and Spillover Effects: Experiences from Emerging Stock Markets. Sima Motamen-Samadian, GOVERNANCE AND RISK IN EMERGING AND GLOBAL MARKETS: Centre for the Study of Emerging Markets Series, Palgrave Macmillan October 2005, Available at SSRN: https://ssrn.com/abstract=975239

Duc Khuong Nguyen (Contact Author)

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

HOME PAGE: http://www.ipag.fr/en/

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