Market liberalization and volatility of returns in emerging markets

Ritab Al‐Khouri and Abdulkhader Abdallah

International Journal of Islamic and Middle Eastern Finance and Management, 2012, vol. 5, issue 2, 106-115

Abstract: Purpose - The purpose of this paper is to examine whether stock market liberalization creates excess stock return volatility in the Qatar Exchange (QSC). Design/methodology/approach - The study utilizes two methods, simple analysis of variance and the EGARCH model with dummy variables. Findings - Results reveal no change in market volatility following the partial removal of the restrictions on foreign participation. Results suggest, however, that the degree of persistence in volatility is high, which implies that once volatility increases it remains high over a long run. In addition, conditional volatility tends to rise when the absolute value of the standardized residuals was large. While, contrary to what has been found in the literature, the return volatility seems to be symmetric. Research limitations/implications - The finding of volatility persistence and clustering might imply an inefficient stock market. Therefore, policy makers should emphasize and direct their attention toward increasing the efficiency of the stock market. Practical implications - Being able to make predictions about financial market volatility is of special importance to investors and policy makers since it makes available to them a measure of risk exposure in their investments and decisions. Originality/value - This paper provides a contribution to the empirical literature on stock market volatility. It is the only study, to the authors' knowledge, that investigates the issue of QSC liberalization and volatility. The authors believe that QSC has its own unique characteristics, and the results of the study depend mainly on the market's specific conditions, the quality of its financial institutions and the extent of financial liberalization obtained.

Keywords: Liberalization; Volatility; Foreign participation; EGARCH; Qatar Exchange; Qatar; Emerging markets (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:v:5:y:2012:i:2:p:106-115

DOI: 10.1108/17538391211233407

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