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Enhancing the efficiency of securities markets in East Asia

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  • Swati Ghosh
  • Ernesto Revilla

Abstract

We explore the relative efficiency of stock markets across countries using newly available data on transactions costs and the quality of the informational environment of stock markets. These new measures are constructed from firm-level stock returns in a panel of 60 countries for the period 2000-2004. We develop a framework to understand the linkages between efficiency, liquidity, transactions costs, and informational quality and then study their determinants. We find that some institutional arrangements - such as the availability of stock lending and short selling - and the openness of markets are associated with lower transactions costs. We also find that, although disclosure rules for directors and officers of listed firms are essential, the ability of shareholders to seek redress is more conducive to a better informational environment in stock markets. This in turn serves as the basis for policy recommendations for the East Asian region. In particular, the region needs to continue to strengthen the implementation and enforcement of corporate governance, to further enhance the market and institutional infrastructure, and focus on measures to foster a larger and more diversified investor base, in order to continue to see gains in the efficiency of stock markets.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.

Volume (Year): 1 (2008)
Issue (Month): 2 ()
Pages: 249-268

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Handle: RePEc:taf:macfem:v:1:y:2008:i:2:p:249-268

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Related research

Keywords: liquidity of stock markets; capital markets; stock markets; East Asia; transactions costs; corporate governance;

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References

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  1. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  2. Augusto de la Torre & Sergio Schmukler, 2005. "Whither Latin American Capital Markets?," World Bank Other Operational Studies 10336, The World Bank.
  3. Charles Frederick Kramer & Catriona Purfield & Hiroko Oura & Andreas Jobst, 2006. "Asian Equity Markets," IMF Working Papers 06/266, International Monetary Fund.
  4. Arturo Bris & William Goetzmann & Ning Zhu, 2004. "Short-Sales in Global Perspective," Yale School of Management Working Papers ysm453, Yale School of Management, revised 01 Sep 2009.
  5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "What Works in Securities Law?," NBER Working Papers 9882, National Bureau of Economic Research, Inc.
  6. Lesmond, David A., 2005. "Liquidity of emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 411-452, August.
  7. Hess, David & Impavido, Gregorio, 2003. "Governance of public pension funds : lessons from corporate governance and international evidence," Policy Research Working Paper Series 3110, The World Bank.
  8. G. William Schwert, 2002. "Anomalies and Market Efficiency," NBER Working Papers 9277, National Bureau of Economic Research, Inc.
  9. Lopez-de-Silanes, Florencio & Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei, 2008. "The Law and Economics of Self-dealing," Scholarly Articles 2907526, Harvard University Department of Economics.
  10. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  11. Randall Morck & Bernard Yeung & Wayne Wu, 1999. "The Information Content of Stock Markets: Why do Emerging Markets have Synchronous Stock Price Movements?," William Davidson Institute Working Papers Series 44, William Davidson Institute at the University of Michigan.
  12. Lesmond, David A & Ogden, Joseph P & Trzcinka, Charles A, 1999. "A New Estimate of Transaction Costs," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1113-41.
  13. Karl W. Steininger, 2002. "Transport, Access and Economic Growth," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 3(2), pages 75-91, April.
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Cited by:
  1. Lagoarde-Segot, Thomas, 2009. "Financial reforms and time-varying microstructures in emerging equity markets," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1755-1769, October.
  2. Joyce Hsieh & Chien-Chung Nieh, 2010. "An overview of Asian equity markets," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 19-51, November.
  3. Tao Sun & L. Effie Psalida, 2009. "Spillovers to Emerging Equity Markets," IMF Working Papers 09/111, International Monetary Fund.

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