It is more or less agreed that even though the rising trend has occurred in the stock markets of emerging countries during 1990s, those in the emerging Islamic countries (EIC), with the common characteristics of small size, less liquidity, less efficiency, high cost of capital and volatility, have not been able to perform at the same pace. The proponents of stock market liberalization (SML) prescribes liberalization as a full-fledge solution to the problems of the EIC, whereas the limited number of studies illustrate mixed results. Against this backdrop, this study aims to examine the effects of SML on the development of stock markets in EIC. Relying on panel data techniques on the sample of 7 EIC over the years 1989 to 2008, the results demonstrate that SML significantly increases stock market size and liquidity, hence contributing to the development of stock markets in the EIC. With these results, the study produces policy implications suggesting that SML has been beneficial to the stock markets and further liberalization policies should be implemented to deepen and broaden the stock markets in the EIC.
Stock Market Liberalization, Stock Market Development, Emerging Islamic Countries, Financial Infrastructure