Why Volatility of Returns Differs across Markets after Liberalization? Do Institution and Market Characteristics Matters

This paper investigates the impact of financial market liberalization on stock returns’ volatility for thirty emerging markets by thoroughly looking into the various market characteristics and institutional quality.Using a variant of the GARCH models, the results show that stock market volatility decreases or remains unchanged for countries that generally characterized by better quality institutions and favourable market characteristics. However, volatility increases for countries with low quality markets and institutions. The findings suggest that it is important for emerging countries to prepare better markets and institutions as a prerequisite for financial liberalization. Failure to do so might result in excess financial volatility and the consequent real effects for their economies