Geert Bekaert
Stanford University, Stanford, CA 94305
National Bureau of Economic Research, Cambridge, MA 02138
Campbell R. Harvey
Duke University, Durham, NC 27708 USA
National Bureau of Economic Research, Cambridge, MA 02138
Abstract
Returns in emerging capital markets are very different from returns in developed markets. While most previous research has focused on average returns, we analyze the volatility of the returns in emerging equity markets. We characterize the time-series of volatility in emerging markets and explore the distributional foundations of the variance process. Of particular interest is evidence of asymmetries in volatility and the evolution of the variance process after periods of capital market reform. We shed indirect light on the question of capital market integration by exploring the changing influence of world factors on the volatility in emerging markets. Finally, we investigate the cross-section of volatility. We use measures such as asset concentration, market capitalization to GDP, size of the trade sector, cross-sectional volatility of individual securities within each country, and national credit ratings to characterize why volatility is different in emerging markets.