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?
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.
II. Stock Markets and Economic Growth: Theoretical and Analytical Issues
4 III. Stock Market Development in Emerging Markets
IV. The Stock Exchange of Thailand
A. Market Development
B. Structure, Operations, and Regulations
C. Main Characteristics
V. Methodology and Data
A. The Calderon-Rossell Model
B. The Modified Calderon-Rossell Model
C. The Data
Dependent Variable: Stock Market Development
Banking Sector Development
Savings and Investment
Stock Market Liquidity
Private Capital Flows
D. Estimation Method
VI. Results and Discussion
A. Macroeconomic Determinants of Stock Market Development
22 B. Institutional Quality and Stock Market Development
24 C. Explaining Stock Market Development in Emerging Markets:
25 Is Thailand Different?
D. Limitations and recommendation for further research
26 E. Summary and Conclusion
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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