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Investability and Return Volatility in Emerging Equity Markets

Ka Lok Chan; Kee Hong Bai; Angela Ng

This paper examines how the stocks' investability affects the cross-sectional behavior of stock return volatility in emerging markets. We find that the highly investable stocks experienced higher volatility even after controlling for the country, industry, size, and turnover. We show that the highly investable emerging market portfolio is more correlated with the world market, and the non-investable portfolio is less correlated. The volatility of highly investable stocks increases substantially around the 1998 financial crisis, while the volatility of non-investable does not jump as much.

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