An Empirical Study Of Emerging Equity Market Openings And Their Volatility

The study provides a detailed analysis of the impacts from the opening of emerging equity markets, focusing on the changes and sources of the market volatility around the liberalization periods after comprehensively reviewing the opening history. The paper then introduces the liberalization process of Chinese equity market and investigates whether the opening policies increase the market volatility using the GARCH-M model and Cox-Stuart testing method. Further, the article examines the driving factors behind the volatility of Chinese equity market by employing a weighted multiple regression.The author finds that emerging economies liberalize their equity markets gradually, with its beginning marked by the creation of country funds and followed by a serial of institutional reforms. The liberalization will cause various effects, bringing outside shocks to the newly-opened markets while presenting opportunities for reevaluation of domestic equity prices and promoting the market development. Amongst the effects, the volatility subsequent to the liberalization generally decreases or exhibits no marked changes, albeit slightly mixed for different markets.The author proves that the volatility of Chinese equity market has not yet been intensified by the market opening policies, and that it is restrained by the introduction of QFII, the reforms in exchange rates regime and the institutional investors such as mutual funds but magnified by high inflation rates, the macroeconomic policies of the central government and the fluctuations of Hong Kong stock market.This study makes a contribution to the literature by presenting a comprehensive review of emerging equity market openings as well as the corresponding effects and by elaborating on the opening histories of various markets, which thereupon provides a useful reference for those markets to be liberalized in the future. Compared with the existing literature, the study places the research on Chinese equity market opening against a background of the global emerging market liberalization, and attaches emphasis to the quantitative methods and the exploration of volatility driving factors, which is assumed by the author to give a feasible research framework for further studies.