Financial liberalization and the efficiency of financial markets By applying this to the stock market in the Kingdom of Saudi Arabia

Abstract

The research aimed to measure the impact of financial liberalization on the 
efficiency of the Saudi stock market during the period 2010- 2026  The 
research tested the hypothesis of the relationship between the efficiency of 
stock markets and financial openness, through the hypothesis of the 
relationship between the Saudi stock market index and stock returns, and the 
extent of the randomness of these returns before and after liberalization. The 
study relied on the daily historical data of the Tadawul stock market index. 
The period from TASIF rom January 7, 2012, to July 7, 2014, totaling 2013, 
dummy variables were created to represent the periods and phases of market 
liberalization as follows: the first period from 2012 until mid-2013, prior to 
the entry of foreign investors; the second period from the start of liberalization 
in June 2013, when the Qualified Foreign Investor (QFI) program was 
implemented. For the first time, the third period of global integration QFI 
2006-2007: The formal inclusion of Saudi Arabia in emerging market indices, 
fourth period: full liberalization in February 2004, opening the market 
directly to all foreign and individual investors. Multiple statistical tests and 
models were used, including descriptive tests of market data and then 
quantitative tests of the index returns for the Saudi market using the [test name 
missing].The KPSS test is used to test marketer changes, as well as the Wald 
test and the Chow test. Saudi Stock Exchange Index returns remain stable. 
Variance Ratio (VR) (in addition to the TASI test) To test the random walk 
hypothesis of returns on the Saudi stock market index (To measure the impact 

of financial liberalization phases on average returns and their fluctuations, the 
GARCH model and the TASI (1,1) model will be used. model) To measure 
the impact of financial liberalization and the asymmetry of fluctuations in the 
Saudi financial market, (EGARCH)1,1 The most important results of the 
study indicate that financial liberalization in the Kingdom of Saudi Arabia 
has contributed to enhancing the efficiency of the financial market gradually 
without leading to its instability in the later stages, and without achieving 
complete random progress. Financial liberalization has also gradually and 
cumulatively improved the institutional maturity of the market, and has not 
reached the level of completely eliminating all manifestations of inefficiency. 
This is consistent with the literature that considers market efficiency to be a 
dynamic process that develops with the deepening of financial reforms and 
the increase in the maturity of institutions and pricing mechanisms.