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

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  • Bley, Jorg
  • Saad, Mohsen

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.

Suggested Citation

  • Bley, Jorg & Saad, Mohsen, 2011. "The effect of financial liberalization on stock-return volatility in GCC markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 662-685.
    • Handle: RePEc:eee:intfin:v:21:y:2011:i:5:p:662-685
    DOI: 10.1016/j.intfin.2011.04.003
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    8. Rui Wang & Hang (Robin) Luo, 2019. "Does Financial Liberalization Affect Bank Risk-Taking in China?," SAGE Open, , vol. 9(4), pages 21582440198, November.
    9. Alderighi, Stefano & Cleary, Siobhan & Varanasi, Padmasai, 2019. "Do institutional factors influence cross-border portfolio equity flows? New evidence from emerging markets," Journal of International Money and Finance, Elsevier, vol. 99(C).
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    More about this item

    Keywords

    Conditional volatility; Financial liberalization; GCC markets;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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