Effects of Stock Market Liquidity on Growth Project Report

Historically, it has been difficult to obtain solid data on stock market liquidity for large parts of the world. In recent years, however, the availability of data has improved, but does still have troubles with concentrations to recent years and to relatively wealthy countries. Thus, samples based on balance between industrialized and developing countries may easily come to include very few of the poorest countries. Also, recent theory suggests differences in the impact of stock market liquidity on growth between very poor and other countries. While several papers that have used these data have found significance for liquidity on growth globally, they have also been criticized for potential selection bias and for limited time depth.In this thesis we construct a sample based on attempting to get the representation of the poorest countries at least reasonably good. We then test the significance of liquidity on growth globally using this sample; we test if there are significant differences between countries of different wealth levels and if the time span is still long enough for the results of our tests to be relevant.We find that adjusting for the under representation of the poorest countries comes at the expense of getting a very limited time span. The sample became strongly weighted to the mid and late 90s and the impacts of large unsubstantiated fluctuations…

Contents

1.Introduction
2. Theory
2.1 Differences between Debt and Equity
2.2 Is equity financing equally important regardless of the general wealth levels of an economy?
3. Earlier studies
4. Method and Measurements
4.1 Measurements
5.Results
6.Conclusions
Resources
Appendix 1: Mathematically deriving the formula for Blackburn et al´s critical capital level (below which only debt financing is feasible)
Appendix 2: Country list tables for the selection bias measurement

Author: Dalsenius, Martin

Source: Uppsala University Library

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Effects of Stock Market Liquidity on Growth Project Report