Stock market efficiency before and after a financial liberalisation reform: do breaks in volatility dynamics matter?

Research output: Contribution to journalArticle

Abstract

This article focuses on the deviations from normality of stock returns before and after a financial liberalisation reform, and shows the extent to which inference based on statistical measures of stock market efficiency can be affected by not controlling for breaks. Drawing from recent advances in the econometrics of structural change, it compares the distribution of the returns of five East Asian emerging markets when breaks in the mean and variance are either (i) imposed using certain official liberalisation dates or (ii) detected non-parametrically using a data-driven procedure. The results suggest that measuring deviations from normality of stock returns with no provision for potentially existing breaks incorporates substantial bias. This is likely to severely affect any inference based on the corresponding descriptive or test statistics.
Original languageEnglish
Pages (from-to)315-340
Number of pages26
JournalJournal of Emerging Market Finance
Volume8
Issue number3
DOIs
Publication statusPublished - Sep 2009

Keywords

  • financial liberalisation
  • volatility
  • breaks
  • stock market efficiency

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