Volatility shifts in stock market returns: A look at emerging markets

The volatility or risk parameter, usually defined as the standard deviation of stock returns, forms the cornerstone of contemporary finance theories. Reliability of results obtained from various financial decision making models depends on the stability, finiteness, and accuracy of risk estimates. This paper examines the stability of this parameter using weekly market data over 1990-91 in respect of 17 emerging markets identified by the International Finance Corporation. Through an application of non-parametric test procedures, the study detects variance heterogeneity for 6 out of 17 markets. Though not pervasive, a review of major political-economic events over the sample period, with special reference to the Gulf crisis of August 1990, is attempted to partly validate empirical findings.