TY  - JOUR
AU  - Bekaert,Geert
AU  - Harvey,Campbell R.
AU  - Lundblad,Christian
TI  - Growth Volatility and Financial Liberalization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10560
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10560
L1  - http://www.nber.org/papers/w10560.pdf
N1  - Author contact info:
Geert Bekaert
Graduate School of Business
Columbia University
3022 Broadway, 411 Uris Hall
New York, NY 10027
Tel: 212/854-9156
Fax: 212/662-8474
E-Mail: gb241@columbia.edu

Campbell R. Harvey
Duke University
Fuqua School of Business
Durham, NC 27708-0120
Tel: 919/660-7768
Fax: 919/660-8030
E-Mail: cam.harvey@duke.edu

Christian Lundblad
Department of Finance
University of North Carolina at Chapel Hill
Chapel Hill, NC  27599-3490
Tel: 919-962-8441
Fax: 707-371-7060
E-Mail: Christian_Lundblad@unc.edu
AB  - We examine the effects of both equity market liberalization and capital account openness on real consumption growth variability. We show that financial liberalization is mostly associated with lower consumption growth volatility. Our results are robust, surviving controls for business-cycle effects, economic and financial development, the quality of institutions, and other variables. Countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings. The results hold for both total and idiosyncratic consumption growth volatility. We also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to GDP growth volatility, suggesting improved risk sharing. Our results are weaker for liberalizing emerging markets but we never observe an increase in real volatility. Moreover, we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors.
ER  -