The Effects of Financial Liberalization on Stock Market Cycles: Structural Time Series Models
Keywords:
business cycle, emerging stock market, financial liberalization, structural unobserved components
Abstract
We compare the behaviour of stock market cycles during repression, in the aftermath of financial liberalization,and in the short and long run following liberalization. We investigate the characteristics of stock market cycles ina group of Latin American (Argentina, Brazil and Chile) and Asian countries (Philippines, Korea, Taiwan andThailand) during 1975-2005. This paper aims to apply the methodology of univariate structural unobservedcomponents time series models. Our results indicate that liberalization triggers more volatile stock market in theshort run. Still, liberalization seems to generate more stable financial markets in the long run. Stock marketcycles of Asian countries continue to be very high in the post-reform period, mostly because of the influence ofthe Asian crisis. However, after financial liberalization, Latin American stock market leads to more stable stockmarket cycles.
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2014-02-26
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