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Duc Khuong Nguyen, Mondher Bellalah, 2007. "Testing for Structural Breaks and Dynamic Changes in Emerging Market Volatility."
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| Abstract: |
| This paper aims to test for structural breaks and dynamic changes in emerging market volatility. We
typically relate these issues to stock market liberalization since the latter is often considered as one of
the most important forces that promote economic growth and rapid maturation of the emerging markets
of the world. Using a bivariate GARCH-M model, stability tests in a linear framework and a
pooled time-series cross-section model, we show that structural breaks detected in emerging market
volatility series do not happen together with official liberalization dates, but they rather coincide with
dates of the first ADR/Country Fund introduction and with dates of large increases in the US capital
flows. Consistently, the pooled estimation results indicate that liberalization methods other than liberalization
via a formal policy decree are the ones that significantly affect volatility. |
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