The Impact of Financial Liberalization on Stock Returns and Volatility in Emerging Equity Markets

This study examines the impact of financial liberalization on the returns and volatility of eleven emerging stock markets. Time points of structural changes in the data are detected first based on the iterated cumulative sums of squares (ICSS) algorithm developed by Incl?n and Tiao (1994). Using weekly data, multiple structural change points are detected for eleven emerging markets, with the number of changes ranging between 4 and 10. As for the impact of the announcement of liberalization and the variance structure changes, we use dummy variables in the GARCH model. Analytical results indicate that of the eleven countries sampled, the stock returns decreased significantly in Argentina and Thailand while the stock returns increased significantly in Indonesia and Turkey. Conditional variance of stock returns increased significantly in Brazil, the Philippines, Turkey, and Indonesia but decreased in Taiwan and Argentina.