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Stock market liberalization and price response: gradualism versus cold turkey

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We present a simple analytical framework that illustrates the impact of two types of market liberalization on stock prices: cold turkey versus gradual liberalization. Using this theoretical framework, we show that gradual stock market liberalization can have a negative impact on stock prices when such gradual liberalization increases uncertainty about future stock prices. We examine the liberalization experience of the Korean stock market, and find that our analysis could be relevant in that case.
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Keywords: G15; G18; foreign ownership; liberalization; stock market; uncertainty

Document Type: Research Article

Affiliations: 1: Department of Economics,Konkuk University, Hwayang-dong 1Seoul 143-701, Republic of Korea 2: Korea Development Institute, Cheongryangri-Dong 207-41Seoul 130-012, Republic of Korea 3: School of Economics,Yonsei University, Shinchon-Dong 134Seoul 120-749, Republic of Korea

Publication date: 2013-01-01

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