The Impact of Financial Liberalization Announcement on the Volatility of Emerging Stock Markets in the Short Run

This study examines structural breaks and the impact of financial liberalization on the volatility of ten emerging stock markets during 1986-1998. The time points of structural changes in the data are detected first, based on the iterated cumulative sums of squares (ICSS) algorithm developed by Inclan and Tiao (1994). It shows that multiple structural change points are detected for ten emerging markets, with the number of changes ranging between 21 and 43. As for the impact of the announcement of liberalization on the structural changes in the volatility of stock returns, structural changes were de-tected in only four countries (namely, Korea, Taiwan, Mexico and Thailand), while the remaining six countries exhibit no such changes around the date of the announcement. Periods containing market liberalization, but with no other structural changes before and after that liberalization, were taken as the sample period. Analytical results indicate that of the ten countries sampled, the volatility of stoc