Price effects of stock market liberalization in Taiwan

In January, 1991, the Taiwan stock market was partially opened to direct investment by foreign investors. This paper examines the stock price effects of this market liberalization. We use the GARCH methodology to investigate the impact of stock-market liberalization on the distribution of stock returns yielded by the Taiwan Weighted Index over the period, 1988–1994. The results show that Taiwan's stock market liberalization has induced some changes in the returns distribution. More importantly, the volatility of stock returns is lower post-liberalization.