Emerging equity market volatility

Understanding volatility in emerging capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. We provide an approach that allows the relative importance of world and local information to change through time in both the expe...

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Bibliographic Details
Published in:Journal of financial economics 1997, Vol.43 (1), p.29-77
Main Authors: Bekaert, Geert, Harvey, Campbell R.
Format: Article
Language:English
Subjects:
Capital market reforms
Capital markets
Correlation analysis
Economic models
Emerging markets
Equity
Financial economics
International finance
Manycountries
Rates of return
Studies
Volatility
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Summary:Understanding volatility in emerging capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. We provide an approach that allows the relative importance of world and local information to change through time in both the expected returns and conditional variance processes. Our time-series and cross-sectional models analyze the reasons that volatility is different across emerging markets, particularly with respect to the timing of capital market reforms. We find that capital market liberalizations often increase the correlation between local market returns and the world market but do not drive up local market volatility.
ISSN:0304-405X
1879-2774
DOI:10.1016/S0304-405X(96)00889-6