Determinants of Stock Market Development in Emerging Economies: Is Thailand Different?

Topics: Investment, Stock market, Stock exchange Pages: 23 (7611 words) Published: July 27, 2013
The Institute of International Studies - Ramkhamhaeng University

BM 622 Investment Management

Professor Dr. Felix Ayadi

Determinants of Stock Market Development in
Emerging Economies: Is Thailand Different?

Presented by
Anusara Inpansuan
Chiranan Thongbainoy
Nonglak Nusanram
Yossawat Lerdthannavaranont
Master of Business Administration

This paper is an adaptation from a study conducted by Charles Amo Yartey from the International Monetary Fund. The paper examines the macroeconomics and institutional determinants of stock market development using data from 42 countries during the period 1990 to 2004. The paper finds that macroeconomic factors such as income level, gross domestic development, banking sector development, private capital flows, and stock market liquidity are important determinants of stock market development. Additionally, it analyzes institutional factors such as political risk and stability and law and order are also important determinants of stock market development because they enhance the investors trust in the stability of the market. Analysis in this paper will also present that factor for the development of stock market in other countries can also explain the development of Stock market in Thailand.

I. Introduction3
II. Stock Markets and Economic Growth: Theoretical and Analytical Issues4 III. Stock Market Development in Emerging Markets6
IV. The Stock Exchange of Thailand8
A. Market Development8
B. Structure, Operations, and Regulations9
C. Main Characteristics10
Market Size
Market Depth11
V. Methodology and Data11
A. The Calderon-Rossell Model11
B. The Modified Calderon-Rossell Model13
C. The Data14
Dependent Variable: Stock Market Development15
Income Level15
Banking Sector Development15
Savings and Investment16
Stock Market Liquidity16
Macroeconomic Stability17
Private Capital Flows17
Institutional Quality18
D. Estimation Method20
VI. Results and Discussion22
A. Macroeconomic Determinants of Stock Market Development22 B. Institutional Quality and Stock Market Development24 C. Explaining Stock Market Development in Emerging Markets: 25 Is Thailand Different?

D. Limitations and recommendation for further research 26 E. Summary and Conclusion27

I. Introduction
Over the past decades, the world stock markets have expanded significantly and that stock market from developing countries mainly has played an important role in this. Due to this significant change in the stock market around the world, many companies have shifted their financial structures from the usual practices to more advance sources such as capital inflows from developed nations. A key indicator of stock market development, the capitalization ratio (market capitalization as a proportion of GDP) rose during the past few years in countries such as Thailand where in 2001 the market capitalization was 24.03% of the country’s GDP to a high as 87.09% in 2010. This paper studies macroeconomic factors and institutional factors that are determinants of stock market development in Thailand. The paper is compared to a research paper conducted by the International Monetary Fund using data of emerging economies from 42 countries during the period 1990 to 2004, globally. The paper specifically examines and analyzes the impact from domestic savings, investment, stock market liquidity, macroeconomic stability, private capital flows, banking sector development, and institutional quality on stock market development. “The development of an economy’s financial markets is closely related to its overall development. Well-functioning financial systems provide good and easily accessible information. That lowers transaction costs, which...
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