Emerging markets present differences in structural characteristics, yet exhibit commonalities of melancholy evidence of varying degrees of economic and political under‐development. There is a greater consensus in the finance literature on what the characteristics of emerging markets are than there is on their meaning. Some perceive the financial markets in terms of the mix of financial institutions and the level of development of the national economy. In this respect, popular reference relates to the dichotomy between developed and developing countries. This view of the emerging markets is flawed on the grounds that some countries within the developed countries' group are regarded as emerging markets (e.g. Portugal, Greece and former USSR) (see for example, Todaro, 1989, p.16). Narrow conceptions then focus on the level of development (and efficiency) of the national stock market and financial system, hence the appellation ‘emerging stock markets of developing countries’. These markets are thought to suffer from the small numbers market condition (Williamson, 1975), allocative efficiency distortion, and a range of market imperfections and externalities, including transaction costs. Yet others cast these markets in terms of their high levels of political risk, involving essentially military interregnums or what the international investor regards as unwarranted government intervention in exchange transactions.
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