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The Determinants of Stock Market Development: Implications of a Dynamic Panel Data Model

Johansson, Daniel LU and Schou Kongstad, Andreas LU (2013) NEKN02 20131
Department of Economics
Abstract (Swedish)
The motivation for writing this thesis has been to evaluate which parameters that affect the stock market development in a country by using a Dynamic Panel Data model with Panel Data from 98 countries between the years 1992-2011. A scoring system called Stock Market Indicator (SDI) is also developed, in which the worlds countries is ranked in order to assess how the 98 selected countries are performing relative to each other. The SDI-score will be calculated using the coefficients of the variables that show a significant relationship with the determinant variable as the weighting parameters. The econometrical model is constructed based on 16 different Macroeconomic and Sociologic parameters, and their elasticity in relation to the growth... (More)
The motivation for writing this thesis has been to evaluate which parameters that affect the stock market development in a country by using a Dynamic Panel Data model with Panel Data from 98 countries between the years 1992-2011. A scoring system called Stock Market Indicator (SDI) is also developed, in which the worlds countries is ranked in order to assess how the 98 selected countries are performing relative to each other. The SDI-score will be calculated using the coefficients of the variables that show a significant relationship with the determinant variable as the weighting parameters. The econometrical model is constructed based on 16 different Macroeconomic and Sociologic parameters, and their elasticity in relation to the growth in market capitalization is then evaluated using the selected econometrical methodology. Using a Dynamic GMM Panel Data Model, 9 of the selected parameters was found to have a significant relationship with the dependent variable, and was then selected for the SDI-ranking system. Seven of the significant variables in the tests showed the predicted signs, and two variables did not. Gross Domestic Product, Mergers and Acquisitions, Gross Fixed Capital Formation, Domestic Credit to Private Sector, Rule of Law, Political Stability and Mobile Users had a significant, positive impact on the change in market capitalization. Inflation and the Official Exchange Rate showed a significant negative relationship with the determinant, opposite to what we had expected after reviewing previous research. The SDI-score mainly favored developing countries, as it benefits economies that have seen the largest growth in the selected parameters. It is generally easier to obtain a large percentage increase in a parameter if the previous value is on a very low level. On the other hand, those countries might also be the ones where the most significant future growth is, as the same logic applies to the dependent variable. The top 5 countries in our SDI-score turned out as follows: Mongolia, Papa New Guinea, El Salvador, Kyrgyz Republic, and United Arab Emirates. At the other end, Egypt, Tunisia and United Kingdom, turned out as the least attractive countries to invest in. (Less)
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author
Johansson, Daniel LU and Schou Kongstad, Andreas LU
supervisor
organization
course
NEKN02 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Dynamic Panel Data, Stock Market Development, Developed Countries, Developing Countries, GMM
language
English
id
3809257
date added to LUP
2013-06-12 14:44:10
date last changed
2013-06-12 14:44:10
@misc{3809257,
  abstract     = {The motivation for writing this thesis has been to evaluate which parameters that affect the stock market development in a country by using a Dynamic Panel Data model with Panel Data from 98 countries between the years 1992-2011. A scoring system called Stock Market Indicator (SDI) is also developed, in which the worlds countries is ranked in order to assess how the 98 selected countries are performing relative to each other. The SDI-score will be calculated using the coefficients of the variables that show a significant relationship with the determinant variable as the weighting parameters. The econometrical model is constructed based on 16 different Macroeconomic and Sociologic parameters, and their elasticity in relation to the growth in market capitalization is then evaluated using the selected econometrical methodology. Using a Dynamic GMM Panel Data Model, 9 of the selected parameters was found to have a significant relationship with the dependent variable, and was then selected for the SDI-ranking system. Seven of the significant variables in the tests showed the predicted signs, and two variables did not. Gross Domestic Product, Mergers and Acquisitions, Gross Fixed Capital Formation, Domestic Credit to Private Sector, Rule of Law, Political Stability and Mobile Users had a significant, positive impact on the change in market capitalization. Inflation and the Official Exchange Rate showed a significant negative relationship with the determinant, opposite to what we had expected after reviewing previous research. The SDI-score mainly favored developing countries, as it benefits economies that have seen the largest growth in the selected parameters. It is generally easier to obtain a large percentage increase in a parameter if the previous value is on a very low level. On the other hand, those countries might also be the ones where the most significant future growth is, as the same logic applies to the dependent variable. The top 5 countries in our SDI-score turned out as follows: Mongolia, Papa New Guinea, El Salvador, Kyrgyz Republic, and United Arab Emirates. At the other end, Egypt, Tunisia and United Kingdom, turned out as the least attractive countries to invest in.},
  author       = {Johansson, Daniel and Schou Kongstad, Andreas},
  keyword      = {Dynamic Panel Data,Stock Market Development,Developed Countries,Developing Countries,GMM},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Determinants of Stock Market Development: Implications of a Dynamic Panel Data Model},
  year         = {2013},
}