| The role of the Stock Market is being examined in three contexts. The first essay investigates whether stock market development leads to long run economic growth using panel data for twenty-two developing countries from 1975--1992. Statistical findings indicate that the relationship between stock market development and longrun economic growth remains strong even after controlling for lagged growth, market liquidity, and other control variables. Hence, I believe that governments should play a more positive role in order to foster stock market development, especially in emerging economies. The second essay analyzes the role of stock market development and capital structures using panel data of twenty-two developing countries from 1982--1992. In particular, I look at the effect of stock market development on emerging market firms' financing choice between debt and equity, based on standard considerations of cost, risk, control, and disclosure. It can be concluded that stock market as measured by market capitalization is statistically significant and negatively correlated with both long-term and short-term debt to equity ratio of the firm. Furthermore, the results also show that the banking sector is positively correlated with short-term debt to equity ratio. This conclusion has an interesting implication in that firms consider the stock market and the banking sector as substitutes to each other, i.e., firms substitute equity for long term debt and not as much for short term debt. The third essay examines the co-movement of international stock markets using structural cointegrating vector autoregressive approach (VAR), for eight stock exchanges in developed and developing countries using both daily and monthly data from March 1st, 1994 through October 28th, 1998 and January 1991 to July 1998 respectively. The study investigates whether domestic stock market volatility is effected by foreign stock markets (following the contagion argument) or is it effected by internal macroeconomic fundamental factors. The results indicate that a substantial amount of interdependence exists among world stock markets on a daily basis, but not at the monthly basis. This leads me to believe that world stock markets are efficient. |
