Elasticities of Stock Prices in Emerging Markets

Abstract

While differences in stock price behaviours among developed countries have been extensively researched and documented, investigations of this nature for emerging economies are, however, much less comprehensive. We undertake a quantitative analysis that investigates six different types of panel data models to define the best one that explains the stock price behaviour of publicly traded companies in emerging countries. The research is based on a sample from Compustat Global, including 5,167 stocks of companies from 38 emerging countries, covering 119 months (1998–2007), totalling 235,621 observations. This analysis of the elasticities of regressors corresponding to stock transactions in stock markets, through a considerable sample, contributes to a deeper discussion about stock price behaviour in countries with less developed stock markets. The findings demonstrate that stock quantity and total volume traded per month significantly influence closing price behaviour over time, with more efficient estimators for the fixed effect model. Moreover, different elasticities are verified among countries. This chapter does not take into account the macroeconomic reasons why the differences among countries occur. Further, the consideration of developed countries, such as United States, United Kingdom, France or Australia, could bring the possibility of comparison of stock prices among countries in a broader perspective. Overall this analysis can help governments and private initiative for the formulation and implementation of strategic actions, in order to constantly improve the quality of their stock markets and, consequently, to increase the entry of resources destined to the development of nations.

Citation

Paulo Lopes Fávero, L. and Barreira Sotelino, F. (2011), "Elasticities of Stock Prices in Emerging Markets", Batten, J.A. and Szilagyi, P.G. (Ed.) The Impact of the Global Financial Crisis on Emerging Financial Markets (Contemporary Studies in Economic and Financial Analysis, Vol. 93), Emerald Group Publishing Limited, Leeds, pp. 473-493. https://doi.org/10.1108/S1569-3759(2011)0000093017