Volatility and Predictability in National Stock Markets: How Do Emerging and Mature Markets Differ?

April 1, 1996

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Anthony J. Richards Volatility and Predictability in National Stock Markets: How Do Emerging and Mature Markets Differ?, (USA: International Monetary Fund, 1996) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the evidence for the common assertion that the volatility of emerging stock markets has increased as a result of the liberalization of markets. A range of measures suggests that there has been no generalized increase in volatility in recent years; indeed, it appears that volatility may have tended to fall rather than rise on average. The paper also tests for the predictability of long-horizon returns in emerging markets. While there is evidence for positive autocorrelation in returns at horizons of one or two quarters, the autocorrelations appear to turn negative at horizons of a year or more. However, the magnitude of the apparent return reversals is not that much larger than reversals in some mature markets. One interpretation of the results would be that emerging markets have not consistently been subject to fads or bubbles, or at least no more so than in some industrial countries. In general, the liberalization and broadening of emerging markets should lead to a reduction in return volatility as risk is spread among a larger number of investors.

Subject: Asset prices, Emerging and frontier financial markets, Financial institutions, Financial markets, Market capitalization, Prices, Stock markets, Stocks

Keywords: Asset prices, Emerging and frontier financial markets, Equity market return, Global, Log-differenced return, Market capitalization, Market capitalization, Mature market, Portfolio return, Return behavior, Return differential, Return horizon, Return index, Return indices, Return reversal, Returns process, Stock markets, Stock return data, Stocks, U.S. dollar, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/029
Stock No:

WPIEA0291996
ISBN:

9781451844757
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 43, No. 3, September 1996.

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