For example, what are the major factors that influence whether or not a stock market achieves weak form/ semi-strong form market efficiency?
There are architectural and physical efficiency issues, economic efficiency issues and financial efficiency issues which require String Theoretic and Relativistic Analysis and Geometric Fractal Data outputs after systems integration this is after ensuring equity and efficiency in financial assets allocation and final consumption allocations and all this should be observable from the ticker tapes so to say. I refer to my RG webpage, pardon my arrogance, especially my work on String Theory Field Theory of Stock Exchanges. SKM QC
The two major determinants of a stock market development are the average volume of trade and the aggregate market capitalization of all stocks traded in that market. I do not believe that weak form efficiency or semi-strong form efficiency are systematic key indicators of the level of development of a stock market. Basically, stock markets with high capitalization and high trade volume have an infrastructure that is backed by a solid regulatory oversight. This strong regulatory oversight brings confidence to investors and helps the market reach weak-form efficiency and semi-strong efficiency.
what then are some of the key determinants of trading volume and market capitalization?
Trading volume reflects the level of dynamic activities of the market in terms of buy and sell. So, the key determinant of trading volume is the number and dollar value of all the transactions generated by buyers and sellers currently engaged in the market. Market capitalization is the aggregate dollar value of all the stocks traded in the market. The presence of stronger, mature and well managed companies raises the aggregate market capitalization of the stock market. Stock markets with a high level of development have been shown to attract the best companies that trade their stocks in that market and by so doing contribute in increasing the aggregate market capitalization of the stock market. This is the case for companies such as Apple, Google, Microsoft, Facebook, Amazon,,, etc whose presence in the market raises the total market capitalization of the stock market.
Hi,
Perhaps you may take into consideration the rights of the shareholders. Financial markets are developped where there is some confidence and activity. Shareholders must be well protected by law (no tunneling, no self dealing operations and so on).The majority shareholders must not expropriate minority shareholders. For all of this I advise you to read the following papers:
Legal Determinants of External Finance
with Rafael La Porta, Andrei Shleifer, Robert W. Vishny: published: Journal of Finance, Vol. 52, no. 3 (1997): 1131-1150.
Law and Finance
with Rafael La Porta, Andrei Shleifer, Robert W. Vishny:
Published: Journal of Political Economy, Vol. 106, no. 6 (1998): 1113-1155.
Greetings
Carl, some of the factors could include: (1) national differences in legal system, (2) legal protection of investors, (3) emerging market status, (4) market capitalization, and (5) mean size of firms listed on an exchange (6) stock market indices in place, (7) the number of analysts following the largest companies in a country, and (8) the extent of a country’s media development. DM
stock market development, as you know, is measured by several measures. However, the determinants of really an empirical issue. I would consider "macroeconomic stability" as an important one. My stability, it is meant annual change in real GDP growth and inflation. Good luck
Is anyone aware of any empirical, work on the variables influencing transition from say a frontier to an emerging market?
How important might the degree of ownership concentration be? I can see that having a major impact on trading volumes for example.
A number of markets I look at have put a lot of effort into the institutional infrastructure but my sense is that because there is high ownership concentration among investors with long term strategic orientation trading is extremely thin. Maybe the influence of foreign portfolio investors is a critical factor.
Major determinants of stock market development are macroeconomic indicators. It is also believed that the relationship is bi-causal. One can think about indicators such as inflation, GDP, exchange rate etc that affect stock market development and vice-versa.
Dear Carl Robinson
Your question is very interesting, I'm also intending to do some studies relating to this field. In my studies, I use some indicators to measure "stock market development"
1. The market capitalizations
2. The volumn of stock trade
3. The degree of floating stock
4. The volumn of investors
5. The volumn of analysts
And you can find some other indicators in many related studies.
I think it depends on the specific topic that you want to study.
Best regards
Dear Mr. Robinson,
I agree with bellow answers and would just add that your question would be better to divide to two parts with separating/systemizing related determinants/factors, some of which are presented here:
1. What are the major determinants of the level of stock market development?
- a. Market capitalization parameters.
- b. Market capitalization/GDP ratios.
- c. Trade volumes.
- d. Market turnover and liquidity.
- e. Degree of floating stocks.
- f. Volatility, stability and risk premium.
- g. Ownership concentration.
- h. Level of the market international and regional integration.
- i. Quality of regulatory oversight.
- j. Quality/level of protection of investors’ rights, including the minority shareholders.
- k. Confidence of investors, etc.
2. What are the major external factors that influence on the stock market development and efficiency?
- a. Macroeconomic stability.
- b. Macroeconomic indicators (GDP, exchange rate, inflation, basic market rates, etc.).
- c. Level of the institutional/infrastructure development and their ability to resist/face the market risks and decrease maximally the transaction costs, etc.
- d. Corporate governance culture and quality.
- e. Quality of business competition environment.
- f. Investment and business climate/attractiveness.
- g. Transparency, legality and stability of the economy.
- h. Quality of legal system.
- i. Tax system and administration.
- j. Level of corruption.
- k. Level of a media/information system development, etc.
Sure, we can find some other indicators in many related studies, the most of which are interrelated as the most of the above listed and depend on the particular market and on the specific topic of the study.
With best regards
Samvel
Maهn Indicators of Stock Market Development: Number of Listed Companies,Market Capitalization (% of GDP),Value Traded (% of GDP)
Turnover Ratio (%) and GDP Per Capita ($
Dear Carl Robinson
The stock market development related to many variables and divided in to sides : one of them the macroeconomic variables such as GDP , CPI , Inflation rate , .... and internal variables ( characteristics of firms ) such as net profits , total assets , sales ..... so all these variables may be affect on stock market development and many studies about this issue .
Best Regards,
Dr. Faris Alshubiri
Hi,
I think that first, the information must be free, available for everybody, and with no cost. Quantity of public information is very important, but its quality also. Thus firms' disclosures concerning accounting numbers and others news coming from the firms must be accurate. Moreover information given by the media and by the analysts must be independent.
Second , market regulation must be strong enough to protect investors against wrongdoings (expropriation of minority shareholders and so on), and the authority of the market should be in position to enforce the regulations, and make investors to comply with the law..
Third the market infrastrructure (OTC, organized market) may also be relevant, as soon as the Macro variables have been taken into accounrt, as noticed by others colleagues.
I thin that Samvil's list is comprehensive. However, as far as what determines stock markets' development, there is probably one factor which is also importnat: The operational efficiency of markets and that is "liquidity" and or "liquidity cost" measured by the bid ask spread.
https://www.researchgate.net/publication/285590240_Sensitivity_Analysis_of_Macroeconomic_Variables_and_Stock_Returns_A_Cross-Country_Comparison_between_Bangladesh_and_India
Book Sensitivity Analysis of Macroeconomic Variables and Stock Re...