Empirical studies on the effects of capital market liberalization in Korea and Japan.

This thesis empirically examines the economic effects of capital market liberalization in Japan (December 1980) and Korea (January 1992). In the first essay, some of the predictions from Svensson's (1988) model are investigated. It predicts that if the return for assets under autarky is less correlated with home output than with foreign output, those assets will tend to be imported by home country once trade is allowed. Using data from the United States and Japan during the 1970s, mixed empirical results are found indicating predictions based on his model have little power in explaining monthly data. Longer measurement intervals conform more closely to Svensson's predictions. Correlation coefficients between asset returns and the growth rate of future industrial production do not show significant changes after market opening during the sample periods. In the second essay, the behavior of the Korean stock market is characterized dynamically and strong evidence of time-varying volatility in returns is found. Additionally, the effects of market opening on the volatility spillovers from the developed markets to Korea in 1992 are examined using an MA(1)-GARCH(1,1)-M model. Empirical results do not provide evidence that the ability to invest internationally is a very important factor in the transmission of volatility from one national market to another for the returns in terms of local currency. It is shown, however, that a volatility spillover for the returns in terms of U.S. dollars did occur from developed markets to the Korean markets even before the market opening, reflecting other indirect investment opportunities to foreign investors. In the last essay, the Korean stock market is examined empirically using a pre-specified factors model and is tested for the existence of structural changes in the parameters of the model after the market opening. Even though data from 1985 to 1992 show that no risk premia associated with the economic factors, which are included, are priced in the Korean stock market, some structural changes in the relationship after the liberalization policy in some data sets could be found.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/104326/1/9513394.pdfDescription of 9513394.pdf : Restricted to UM users only