Firm-Specific Variation and Openness in Emerging Markets

Kan Li, Randall Morck, Fan Yang and Bernard Yeung
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Kan Li: University of Alberta School of Business
Fan Yang: University of Alberta School of Business
Bernard Yeung: Stern School of Business, New York University

The Review of Economics and Statistics, 2004, vol. 86, issue 3, 658-669

Abstract: This paper compares the comovement of individual stock returns across emerging markets. Campbell et al. and Morck et al. have shown that the United States saw rising firm-specific stock return variations, and thus declining comovement, over the second half of the twentieth century. We detect a similar, albeit weaker, pattern in most, but not all, emerging markets. We further find that higher firm-specific variation is associated with greater capital market openness, but not goods market openness. Moreover, this relationship is magnified by institutional integrity (good government). Goods market openness is associated with higher marketwide variation. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2004
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