A short survival guide for new stock markets

Matthijs van Dijk

Emerging economies that open a stock market to create an economic boost fail regularly. But under which circumstances do they stand a bigger chance of success?

Mathijs van Dijk, Professor of Finance at Rotterdam School of Management (RSM), Erasmus University Rotterdam, and a team of researchers created the golden list.

A well-functioning stock exchange can help households and businesses in emerging economies stabilise their often fluctuating incomes. That makes opening a stock market so attractive to emerging economies. But a failing stock market can harm the reputation of a country, so it’s important to be aware of the most favourable conditions.

To find out which conditions are crucial, the researchers looked at 59 stock markets that opened in developing countries since 1975. The success of these financial markets was linked to the number of listed companies, the size of the stock, and the intensity of the stock market trading. The results show that some markets flourished, while others – after initial success – collapsed.


In order to remain successful in the long term, in the first five years a minimum number of quotations (around 15) is required. At the same time, at least about 7% of the listed shares have to be traded each year. Stock markets that do not meet these two conditions cannot compensate for this and will never prosper.


The size of the banking sector in a country is an important predictor of later success. This confirms the existing idea that a well-functioning financial market in a booming economy goes together with healthy banking sector.

Domestic Savings

New equity markets are developing well at increasing domestic savings. This indicator is often seen as a gauge of investor demand.

Good Governance

The success of stock markets is largely predicted by 'policy' factors: economic aspects that can be influenced by politics and administration.

The results of the study are of interest to the 49 countries – many of which are developing countries – that do not yet have their own stock market at this time.

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