ISS Working Paper No. 623
Abstract
We study the success and failure of 59 newly established (“nascent”) stock markets since 1975 in their first 40 years of activity. Nascent markets differ markedly in their success, as measured by number of listings, market capitalization, and trading activity. Long-term success is in part determined by early success: a high initial number of listings and trading activity are necessary, though not sufficient, conditions for long-term success. Banking sector development at the time of establishment and development of national savings over the life of the stock market are the other two most reliable predictors of success. We find little evidence that structural factors such as country size or legal and political institutions matter. Rather, our results point to an important role of banks, demand factors, and initial success in fostering long-term stock market development.
Keywords
Stock markets, emerging and developing economies, success factors.
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About the authors
José Albuquerque de Sousa is a PhD Candidate at Rotterdam School of Management, Department of Finance. He is working on the PhD project "Nascent Markets: understanding the success and failure of new stock markets" under the supervision of Prof. Mathijs van Dijk (RSM) and Prof. Peter van Bergeijk (ISS). His main area of interest is financial markets and the role of finance in promoting development.
Thorsten Beck is Professor of Banking and Finance at Cass Business School in London. He is also (Co)-Managing Editor of Economic Policy and Co-editor of the Review of Finance. He was Professor of Economics and founding Chair of the European Banking Center at Tilburg University from 2008 to 2013. Previously he worked in the research department of the World Bank and has also worked as a Consultant for – among others - the ECB, EIB, IMF, the European Commission, ADB, and the German Development Corporation.
Peter A.G. van Bergeijk is Professor of International Economics & Macroeconomics, at the International Institute of Social Studies (ISS) of Erasmus University, and leader of the research programme Economics of Development and Emerging Markets. His most recent book is Earth economics. An introduction to demand management, long run growth and global economic governance, published by Edward Elgar in 2013.
Mathijs van Dijk is Professor of Finance at the Rotterdam School of Management, Erasmus University. He held visiting positions at Ohio State University, Duke University, and UCLA. He studied at Erasmus University, Maastricht University, University of Warwick, and Princeton University. His research focuses on the functioning of international financial markets, with a particular emphasis on their efficiency and liquidity, and on the impact of financial systems on the economy and society at large. His March 2014 inaugural address as a finance professor was entitled “The Social Value of Finance.”