Stock Market Liberalization: Effects on Stock Market Development in the Emerging Islamic Countries

Öz

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. 

Anahtar Kelimeler

• Stock Market Liberalization,Stock Market Development,Emerging Islamic Countries,Financial Infrastructure

Kaynakça

1. Achy, L. (2005). Financial liberalization, savings, investment, and growth in MENA countries. Research in Middle East Economics 6, 67–94.
2. Baer, W. (1967). The inflation controversy in Latin America: A survey. Latin American Research Review, 2(2), 3-25.
3. Beck, T., & A. Demirguc¸-Kunt (2009). Financial Institutions and Markets across Countries and over Time: Data and Analysis. Policy Research Working Paper 4943. Washington, DC, United States: World Bank.
4. Beck, N., & Katz, J. N. (1995). What to do (and not to do) with time-series cross-section data. American political science review, 89(03), 634-647.
5. Bekaert, G., & Harvey, C.R. (1995). Time-varying world market integration. Journal of Finance 50, 403-444.
6. Bekaert, G., & Harvey, C. R. (2000a). Capital Flows and the Behaviour of Emerging Market Equity Returns. University of Chicago Press, (January), 159–194.
7. Bekaert, G., & Harvey, C. R. (2000b). Foreign Speculators and Emerging Equity Markets. Journal of Finance. 55, 565–613.
8. Bekaert, G., Harvey, C. R., & Lundblad, C. T. (2003). Equity Market Liberalization in Emerging Markets. Journal of Financial Research, 26(3), 53–79.

9. Bekaert, G., Harvey, C.R, & Lundblad, C. (2005). Does financial liberalization spur growth? Journal of Financial Economics, 77(1), 3–55.
10. Bhagwati, J. (1998). The capital myth. Foreign Affairs, May/June, pp. 7–12.
11. Boyd, J. H., Levine, R., & Smith, B. D. (2001). The impact of inflation on financial sector performance. Journal of Monetary Economics, 47(2), 221–248.
12. Demetriades, P., & Law, S. H. (2005). Sources of financial development: Some cross-country results. mimeo, University of Leicester.
13. Demirguc-Kunt, A., & Levine, R. (1996a). Stock Markets, Corporate Finance, and Economic Growth: An Overview. The World Bank Economic Review 10 (2), pp. 223-239.
14. Demirgüç-Kunt, A., & Levine, R. (1996b). Stock market development and financial intermediaries: stylized facts. World Bank Econ. Rev. 10 (2), 291–321.
15. Dewandaru, G., Rizvi, S. A. R., Bacha, O. I., & Masih, M. (2014). What factors explain stock market retardation in Islamic Countries. Emerging Markets Review, 19, 106-127.
16. Duasa, J., & Kassim, S. H. (2009). Foreign portfolio investment and economic growth in Malaysia. The Pakistan Development Review, 109-123.
17. Edison, H.J., & Warnock, F.E. (2001). A Simple Measure of the Intensity of Capital Controls. Journal of Empirical Finance, 10, 81-103.
18. Edwards, J., & Fischer, K. (1994). An Overview of the German Financial System. Capital Markets and Corporate Governance.
19. Feyen, E. (2010). Finances of Egyptian Listed Firms and the Performance of the Egyptian Stock Exchange. World Bank Policy Research Working Paper No. 5213.
20. Fuchs-Schündeln, N., & Funke, N. (2001). Stock market liberalization: Financial and macroeconomic implications. IMF Working paper, No. 01/193, Washington, DC.
21. Garcia, F.V., & Liu, L. (1999). Macroeconomic Determinants of Stock Market Development. Journal of Applied Econometrics, 2 (1), 29–59.
22. Granger, C.W.J., & Huang, B. (1999). Occasional structural breaks and long memory. Department of Economics Discussion Paper No. 99 – 14, University of California, San Diego.
23. Gentzoglanis, A. (2007). Financial integration, regulation, and competitiveness in the Middle East and North African countries. Managerial Finance 33, 461–476.
24. Gentzoglanis, A. (2007). Financial integration, regulation, and competitiveness in the Middle East and North African countries. Managerial Finance 33, 461–476.
25. Henry, P.B. (2000a). Stock market liberalization, economic reform, and emerging market equity prices. Journal of Finance, 55, 529-564.
26. Henry, P.B. (2000b). Do stock market liberalizations cause investment booms? Journal of Financial Economics, 58, 301–334.
27. Huang, W. (2006). Emerging markets financial openness and financial development. University of Bristol Discussion Paper, 588.
28. Huang, W. (2008). Stock Market Effects of Emerging Markets Financial Liberalization. Working Paper.
29. Kim, E.H., & Singal, V. (2000). Stock Market Openings: Experience of Emerging Economies. Journal of Business, 73(1), 25–66.
30. Kaminsky, G., & Schmukler, S. (2003). Short-run pain, long-run gain: the effects of financial liberalization. National Bureau of Economic Research.
31. Karim, M.Z.A., & Gee, C.S. (2006). Stock Market Integration Between Malaysia and its Major Trading Partners (1994-2002). Applied Econometrics and International Development, 2006, vol. 6, issue 3, 203-224.
32. Krugman, P. (1998). Saving Asia: It's time to get radical. Fortune, 7 September, pp. 74-80.
33. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W. (1996). Law and Finance. NBER Working Paper No. 5661.
34. Levine, R. (1991). Stock Markets, Growth, and Tax Policy. Journal of Finance 46 (4): 1445-65.
35. Levine, R. (2005). Finance and Growth: Theory and Evidence. In: P. Aghion & Durlauf, S., ed. 2005. Handbook of Economic Growth. Elsevier. Ch.12.
36. Levine, R. & Zervos, S. (1998). Capital market liberalization and stock market development. World Development, Vol. 26, pp. 1169-83.
37. Muktiyanto, I. (2015). Determinant Factors of Market Liquidity in the Indonesian Equity Market (Doctoral dissertation, Victoria University).
38. Naceur, S., Ghazouani, S., & Omran, M. (2007). Does stock market liberalization spur financial and economic development in the MENA region? Journal of Comparative Economics, 36(4), 673–693.
39. OECD (2005) Challenges for Reform of Financial Markets in MENA Countries. Working Group 4, Proceedings.554.
40. Prasad, E., Rogoff, K., Wei, Shang-Jin & Kose, M. A. (2003), Effects of Financial Globalization on Developing Countries: Some Empirical Evidence. IMF Working Paper.
41. Rizvi, S. A. R., Dewandaru, G., Bacha, O. I., & Masih, M. (2014). An analysis of stock market efficiency: Developed vs. Islamic stock markets using MF-DFA. Physica A: Statistical Mechanics and its Applications, 407, 86-99.
42. Rodrik, D. (1998). Who needs capital account convertibility? Princeton Essays in International Finance 207, 55–65.
43. Saadi-Sedik, T. & Petri, M. (2006). The Jordanian Stock Market¬-Should You Invest in It for Risk Diversification or Performance? IMF Working Paper, Middle East and Central Asia Department.
44. Sabri, N. R. (2008). The impact of trading volume on stock price volatility in the Arab economy. Journal of derivatives & Hedge funds, 14(3), 285-298.
45. Sevil, G., Ozer, M., & Kulah, G. (2012). Foreign Investors and Noise Trade in Istanbul Stock Exchange. International Journal of Business and Social Science, Vol. 3, No.4.
46. Singh, A. (1993). Should developing countries encourage stock markets? United Nations Conference on Trade and Development Review, 4, 1 - 28.
47. Stiglitz, J. (1999). Reforming the global economic architecture: lessons from recent crises. Journal of Finance 54, 1508–1521.
48. Stiglitz, J. (2002). Globalization and its Discontents. W.W. Norton, New York.
49. Stiglitz, J., Ocampo, J. A., Spiegel, S., French-Davis, R., and Nayyar, D. (2006). Stability with Growth: Macroeconomics, Liberalization, and Development: Macroeconomics, Liberalization, and Development. Oxford University Press.
50. Stulz, R. M. (2005). The limits of financial globalization. Journal of Finance 60, 1595-1638.
51. Taylor, J.B., 1983. Union wage settlements during a disinflation. American Economic Review 73, 981–983.
52. Wild, J. & Lebdaoui, H. (2014). Stock Market Performance and Economic Growth in Morocco. Global Advanced Research Journal of Management and Business Studies, Vol. 3(5).
53. Yeoh, B. K., Hooy, C. W., & Arsad, Z. (2010). Time-varying world integration of the Malaysian stock market: A Kalman Filter approach. Asian Academy of Management Journal of Accounting and Finance, 6(2), 1–17.