DP11604 Nascent markets: Understanding the success and failure of new stock markets

Author(s): José Albuquerque de Sousa, Thorsten Beck, Peter van Bergeijk, Mathijs A Van Dijk
Publication Date: November 2016
Keyword(s): stock exchanges; financial development
JEL(s): G10, G18, O16
Programme Areas: Financial Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11604

We study the success and failure of 59 newly established ("nascent") stock markets since 1975 in their first 40 years of activity. Nascent markets differ markedly in their success, as measured by number of listings, market capitalisation, and trading activity. Long-term success is in part determined by early success: a high initial number of listings and trading activity are necessary, though not sufficient, conditions for long-term success. Banking sector development at the time of establishment and development of national savings over the life of the stock market are the other two most reliable predictors of success. We find little evidence that structural factors such as country size or legal and political institutions matter. Rather, our results point to an important role of banks, demand factors, and initial success in fostering long-term stock market development.