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The Growth of Global Equity Markets: A Closer Look

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Author Info
Kai Li
Abstract

This paper presents both the time-series and cross-country evidence on the growth of global equity markets and attempts to shed some light on the sources of equity market growth. Using data on 33 countries, I find that development of financial intermediaries and openness to trade are positively associated with the size and activity of equity markets, while government consumption is negatively associated with equity market activity and liquidity. Under the stochastic frontier modeling approach, the legal and institutional characteristics of a country are assumed to affect its equity market development through the channel of institutional efficiency. I show that there are wide differences in institutional efficiency across countries and over time and, Canada, the United States and Singapore possess the most investor-friendly institutional framework that enhances stock market development. My most striking finding is that improvements in institutional efficiency, and changes in investor sentiment, appear to be the driving force behind the phenomenal expansion of global equity markets over the past two decades.

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 54.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:54

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Related research
Keywords: law and finance; government regulations; corporate governance; stochastic frontier; Bayesian inference;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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  25. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July. [Downloadable!] (restricted)
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  26. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law, endowments, and finance," Journal of Financial Economics, Elsevier, vol. 70(2), pages 137-181, November. [Downloadable!] (restricted)
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  27. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April. [Downloadable!] (restricted)
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