The Degree Of Financial Liberalization And Aggregated Stock-Return Volatility In Emerging Markets

In this paper, the authors address whether the degree of financial liberalization affects the aggregated total volatility of stock returns by considering the time-varying nature of financial liberalization. They also explore channels through which the degree of financial liberalization impacts aggregated total volatility. They document a negative relation to the degree of financial liberalization after controlling for size, liquidity, country, and crisis effects, especially for small and medium-sized markets. Moreover, the degree of financial liberalization transmits its negative impact on aggregated total volatility through aggregated idiosyncratic and local volatilities.