Ebook Global Stock Markets Development and Integration: with Special Reference to BRIC Countries
The global growth of stock markets and the emerging market boom have attracted the attention of academics, practitioners, and policy makers. A number of countries, including India and China, are reforming regulations and laws to foster stock market development and attract foreign portfolio flows. The speed and extent of stock market development in developing countries have been unprecedented and have led to fundamental shift both in the financial structures of less developed countries and in the capital flows from developed nations.
India has the distinction of having the second largest number of listed companies after the USA. As per Standard and Poor’s Fact Book 2007, India ranked 8th in terms of market capitalization and 15th in terms of turnover ratio as of December 2007. India posted a turnover ratio of 84% at end 2007. Recent research on stock market development shows that modern communications technology and increased financial integration have resulted in more cross-border capital flows, a stronger presence of financial firms around the world, and the migration of stock exchange activities to international exchanges. Many firms in emerging markets now cross-list on international exchanges, which provides them with lower cost capital and more liquidity traded shares.
However, this also means that exchanges in emerging markets may not have enough financial activity to sustain them, putting pressure on them to rethink their operations. One of the most enduring debates in finance during the last decade is whether stock market integration causes economic growth or whether increased economic growth is a consequence of financial development. This issue had been extensively studied nearly three decades ago by Shaw (1973) and McKinnon (1973), who resulted in significant evidence that financial development promotes economic growth, mainly through a raise in the level of saving and investment.
In a country like India where the stock market is undergoing significant transformation with liberalization measures, and the analysis of the nature of integration with other developed and emerging markets would not only give an idea of the possible gains to be reaped out of portfolio diversification from Indian market, but may also provide some indication of the vulnerability of the country’s stock market in case of a regional financial crisis and consequent reversal of capital flows from the region.
The globalization of financial systems and the acceleration of information transmission have increased the risk of financial crises, as a crisis in one country can spread to other countries and bring about worldwide crises. However, in recent times, with the growing activities of foreign portfolio investors who track international indices and continuously move funds between markets, as well as further linkages with foreign markets through the route of ADR/GDR issues and other channels, correlation between Indian and global stock markets has increased significantly warranting a detailed in depth study.
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PDF Ebook Global Stock Markets Development and Integration: with Special Reference to BRIC Countries
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