STOCK RETURNS AND VOLATILITY IN EMERGING FINANCIAL-MARKETS

This paper studies the dynamics of expected stock returns and volatili ty in emerging financial markets. We find clustering, predictability a nd persistence in conditional volatility, as others have documented fo r mature markets. However, emerging markets exhibit higher conditional volatility and conditional probability of large price changes than ma ture markets. Exposure to high country-specific risk does not appear t o be rewarded with higher expected returns. We detect a risk-reward re lation in Latin America but not in Asia when we assume some level of i nternational integration. We do not find support for the claim that ma rket liberalization increases price volatility. (C) 1997 Elsevier Scie nce Ltd.