The effect of financial liberalization on stock-return volatility in GCC markets

Jorg Bley and Mohsen Saad

Journal of International Financial Markets, Institutions and Money, 2011, vol. 21, issue 5, 662-685

Abstract: We estimate a cross-sectional time-series model to assess the impact of equity market liberalization and capital account openness on individual-firm stock return volatility in GCC (Gulf Cooperation Council) markets. We document evidence that international participation in local trades has no impact on idiosyncratic volatility and a rising impact on total volatility. In contrast, capital account openness significantly reduces total volatility, especially for stocks with low foreign ownership limits. Moreover, we find that the effect of restrictions on capital account transactions is stronger on capital inflows than outflows and on residents than nonresidents. The findings continue to hold for portfolio return volatility. Our results are important for GCC policy makers, portfolio managers, as well as academics.

Keywords: Conditional volatility; Financial liberalization; GCC markets (search for similar items in EconPapers)
JEL-codes: C13 F36 G12 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:21:y:2011:i:5:p:662-685

DOI: 10.1016/j.intfin.2011.04.003

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