THE ENVISAGED ROLE OF CAPITAL MARKETS: CAN THE JORDANIAN STOCK EXCHANGE MEET THE EXPECTATION OF ECONOMIC GROWTH

Abstract

The subject matter of financial development in Jordan cannot be underestimated. For example, licensed banks’ total assets are equivalent to about 180 percent of Gross Domestic Product (GDP). In addition, the country boasts one of the oldest stock markets in the region. The Amman Securities Exchange (ASE) was established in 1978 and its current capitalization is equivalent to about 75 percent of GDP. Given Jordan’s socio-economic challenges, and the fact that successive governments have been suffering from relatively large and consistent budget deficits, it is surprising to learn that since the establishment of the ASE, the market has not developed an active secondary bonds market. The issued bonds are sold to all licensed banks. This observation is unfortunate. Avoiding the concentration of financial intermediation in banks makes sense. In addition, whilst a well-developed bond market allows banks to transfer their risk (securitization), such a market makes the conduct of monetary policy more effective and contributes to budgetary discipline by exposing the government to financial discipline. This paper argues for the need for developing a government securities market. In addition, the paper examines the already listed shares in terms of their liquidity cost. Based on the empirical results, it is reported that listed shares suffer from relatively high liquidity cost. This finding, and its implications, are useful in recommending what must be done to develop an active bonds market

Keywords

• Amman Securities Exchange, bid-ask spread, government securities market

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