The fundamental drivers of stock market liquidity : international, emerging markets and African evidence

Bieger, Jasper ; Floquet, Keegan (2003-12)

Thesis (MBA)--Stellenbosch University, 2003

Thesis

ENGLISH ABSTRACT: According to the World Bank's leading economists Beck and Demlrquc-Kunt one of the major competitive advantages of countries competing for long-term economic growth is the existence of an efficient and liquid domestic stock market. A number of studies have already been performed to examine solitary aspects of stock liquidity, however, rather little work has been done to comprehensively investigate its fundamental set of determinants. Furthermore, none of these studies has ever attempted to specifically focus on African stock markets. Consequently, this study aims to determine the fundamental set of drivers of stock market liquidity in general terms and to investigate the specific conditions of African equity exchanges as part of the group of emerging stock markets. Data for three different samples is collected - comprising a maximum of 46 countries and 17 annual data points - and regression analysis is employed to analyse the relationship between stock market turnover as a proxy for liquidity and a set a potential predictors. Several pure cross-sectional as well as dynamic panel regression models are designed and the results reveal that the four predictors, comprising: number of listed companies, country credit rating, severe restrictions on foreign investors and geographical location on the African continent constitute the fundamental set of drivers of stock market liquidity. In the specific case of African stock markets, domestic banking sector development tends to be the strongest determinant of stock liquidity. This study provides a great deal of value to governments and exchange managers alike; however, it should be regarded as a starting point for subsequent papers analysing the fundamental determinants of stock liquidity. For future research efforts it is recommended to expand the set of potential predictors and specifically focus on the contemporaneous component of the relation between stock market liquidity and its determinants.

AFRIKAANSE OPSOMMING: Volgens die Wêreldbank se voorste ekonome, Beck en Dernirquc-Kunt, is een van die grootste mededingende voordele van lande wat meeding om langtermyn ekonomiese groei, die bestaan van 'n doeltreffende en likiede binnelandse aandelebeurs. 'n Aantal studies is reeds gedoen om die afsonderlike aspekte van effekte-likiditeit te ondersoek, maar redelik min werk is egter gedoen om die fundamentele bepalende faktore omvattend na te vors. Verder het geeneen van hierdie studies ooit probeer om spesifiek op Afrika-aandelebeurse te fokus nie. Gevolglik poog hierdie studie om die fundamentele stel drywers van aandelebeurslikiditeit in die algemeen te bepaal en om die spesifieke omstandighede van Afrika-aandelebeurse as deel van die groep ontwikkelende aandelebeurse te ondersoek. Data is versamel vir drie verskillende steekgroepe - bestaande uit 'n maksimum van 46 lande en 17 jaarlikse datapunte - en 'n regressie-analise is gebruik om die verhouding tussen aandelebeurs-omset as 'n aanduiding van likiditeit en 'n stel potensiële aanwysers te bepaal. Verskeie gewone kruisgewyse sowel as dinamiese paneelregressiemodelle is ontwerp en die resultate toon dat vier aanwysers, naamlik die aantal genoteerde maatskappye, die land se kredietgradering, ernstige beperkings op buitelandse beleggers en geografiese ligging op die Afrika-vasteland, die fundamentele stel drywers van aandelebeurs-likiditeit is. In die spesifieke geval van Afrika-aandelebeurse wil dit voorkom asof die ontwikkeling van 'n binnelandse banksektor die sterkste bepaler van effekte-likiditeit is. Hierdie studie is van waarde vir beide regerings en valutabestuurders. Dit moet egter as 'n beginpunt beskou word vir verdere studies wat die fundamentele bepalers van effekte-likiditeit analiseer. Vir verdere navorsingspogings word voorgestel dat die versameling moontlike aanwysers uitgebrei word en dat daar spesifiek gefokus word op die gelyktydige komponent van die verhouding tussen aandelebeurs-likiditeit en en sy bepalers.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/53638
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