Stock market development and financial intermediaries : stylized facts

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Abstract
World stock markets are booming. Between 1982 and 1993, stock market capitalization grew from $2 trillion to $10 trillion, an average 15 percent a year. A disproportionate amount of this growth was in emerging stock markets, which rose from 3 percent of world stock markets capitalization to 14 percent in the same period. Yet there is little empirical evidence about how important stock markets are to long-term economic development. Economists have neither a common concept nor a common measure of stock market development, so we know little about how stock market development affects the rest of the financial system or how corporations finance themselves. The authors collected and compared many different indicators of stock market development using data on 41 countries from 1986 to 1993. Each indicator has statistical and conceptual shortcomings, so they used different measures of stock market size, liquidity, concentration, and volatility, of institutional development, and of international integration. Their goal: to summarize infromation about a variety of indicators for stock market development, in order to facilitate research into the links between stock markets, economic development, and corporate financing decisions. They highlight certain important correlations: (i) In the 41 countries they studied, there are enormous cross-country differences in the level of stock market development for each indicator. The ratio of market capitalization to the gross domestic product (GDP), for example, is greater than 1 in five countries and less than 0.10 in five others. (ii) There are intuitively appealing correlations among indicators. For example, big markets tend to be less volatile, more liquid, and less concentrated in a few stocks. Internationally integrated markets tend to be less volatile. And institutionally developed markets tend to be large and liquid. (iii) The three most developed markets are in Japan, the United Kingdom, and the United States. The most underdevel
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