A Study On The Opening Risk And Its Protection System Of Emerging Stock Markets

During the last two decades, many emerging markets have opened their domestic stock markets to foreign investors. Emerging stock markets opening inheres twoness: On one hand, emerging stock markets opening promotes financial development, therefore accelerate the economic growth; on the other hand, emerging stock markets opening aggravates market fluctuation, and triggers the crisis and depression.Empirical analysis confirms a positive temporary effect of stock markets opening on real GDP growth. And the regression result suggests that more than 80 percent of the opening effect should be attribute to the beneficial effects on real private investment and financial development. Furthermore,under the pressure of financial globalization, emerging stock markets opening is unavoidable.Emerging stock markets face large opening risk, which can be divided into two catalogs: direct risk and indirect risk. After opening, the influence of short-term capital movement can be measured by the stock return volatility. This paper uses an asymmetric GARCH methodology to examine the effect of stock market opening on stock return volatility for fourteen emerging markets for the period December 1984-March 2000. We find the volatility may decrease,increase, or remain unchanged due to opening. In addition, counties that experienced higher post-opening volatility can be different by market characteristics such as lower market transparency, lower investor protection, and higher market exit restrictions.Concerning preventing opening risk, this paper discussed it from three aspects: the precondition of opening, the advance of interior regulation system and the defensive of external attack.Using annual data from 1975 to 2000, we take a sample of 20 countries that opened their stock markets between 1980 and 2000. For comparison, we document their macroeconomic environment in the period leading up to the opening. We suppose there are three kinds of prerequisite of emerging stock opening: stable macroeconomic environment, big financial market and good social system. In the growth regression, we create the dummy variable, benchmark controls and special controls suggested by theory, using panel data estimation. In our study, we found that a large stock market captured by a high market capitalization ratio has an independent positive growth effect. The most significant institutional variables for the success of opening are thecontract enforceability and the nationalization risks. Results indicate that the benefits of opening are higher in countries that have improved their institutional framework prior to opening.For a mass of foreign investors and capital will swarm into the emerging stock markets after its opening, how to prevent excessive speculation became a critical task to these countries. Undoubtedly, strengthen the stock market regulation is the one and only resolution to solve this problem. The regulation system of emerging stock markets should timely advance to prevent opening risk, which includes: establishing alarm system, improving regulation system in detail and participating in international association of stock market regulation.Hot money and hedge fund are the two external shocks to induce opening risk of emerging stock markets. In this paper, standing for the benefits of the emerging markets, we introduce the primary content of the monitor of hot money and hedge fund. QFII, as a regulation innovation system, promote the stock market opening of India, Korea and Taiwan, and can bring rational investment conceptions, increment capital and internationalization ordinally.Finally, we concern about the opening of Chinese stock market. Through the international comparison of the development level of Chinese stock market, we found that Chinese stock market is provided with some opening prerequisites, but not all prerequisites, such as real market capitalization ratio,real GDP per capita. In addition, a few problems, such as equity partition, poor quality of listed companies and high fragility of financial system, may cause large...