Working Paper: CEPR ID: DP3301
Authors: Stijn Claessens; Daniela Klingebiel; Sergio Schmukler
Abstract: We study the determinants of stock market development and the growing migration of capital raising, listing and trading activity to international exchanges. Economies with higher income per capita, sounder macro policies, more efficient legal systems with better shareholder protection, and more open financial markets have larger and more liquid markets. As such fundamentals improve, however, the degree of migration to international exchanges also increases. This leads to gains for corporations in the form of lower costs, better terms and more liquidly-traded shares. Fully-fledged local stock exchanges are thus becoming less necessary for many economies. Furthermore, migration can leave too little domestic activity to sustain a local exchange. Therefore, the functions and forms of stock exchanges in many economies need to be rethought.
Keywords: ADRs; Crosslisting; Emerging Economies; GDRs; Internationalization of Financial Markets; Stock Exchange Development; Trading Migration
JEL Codes: G15; G18; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher income per capita (D31) | Larger and more liquid stock markets (G10) |
| Sound macroeconomic policies (E60) | Larger and more liquid stock markets (G10) |
| Efficient legal systems (K40) | Larger and more liquid stock markets (G10) |
| Open financial markets (F30) | Larger and more liquid stock markets (G10) |
| Improved fundamentals (E32) | Increased migration to international exchanges (F29) |
| Increased migration to international exchanges (F29) | Lower costs and better terms for corporations (G32) |
| Improved fundamentals (E32) | Increased domestic activity (E20) |
| Excessive migration (F22) | Adverse effects on local exchanges (F31) |
| Improved fundamentals (E32) | Increased activity abroad (F29) |