This study shows the effect of stock market development on economic growth. And result shows that there is a positive relationship among stock market and economic growth. Stock markets are getting progressively globalize from last decade. But stock market got some critical features like short selling insider trading speculative market bubbles etc. which hit the stock markets and its efficiency but these adverse aspects do not bother the equity market for the long time duration. These features just appear and effects the equity markets when trade become volatile and stock prices reduce. But there are some well developed economies where insider's participation is strictly ban because it affects the trading structure and mostly the investors do not feel comfortable to make investment in the markets and it is necessary to get the confidence of the investor for the better movements in the activities of the stock markets.
Nowadays, additional improvements in the information technology are resulting to ease and speed up the trading system. Transaction speed now becoming very fast and speedy information is spreading to all traders within no time. Due to this reason large contributor of the market are using different advance trading techniques to trade large number of transactions with the help of electronic trade in different location with burning speed. The results reveal that the positive influence of stock market development on economic growth. On the basis of market capitalization groupings, stock market developments play a significant role in growth only for moderately capitalized markets.
Introduction:
Stock market plays an important and multiple roles in economic development of a country. The Stock market helps companies to raise capital for expansion through selling shares to the investing public which help in mobilizing savings for investment which in turn benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels.
Stock market importance started between 80,s to 90,s when stock market capitalization grew from $2 trillion to around $10 trillion. This shows an average annual growth rate of 15%. The global growth of stock markets and the emerging market boom have attracted the attention of academics, practitioners, and policy makers. Many studies focus on measuring the benefits to holding a globally diversified portfolio and many countries are reforms.
In regulations and laws to foster capital Market development and attract foreign portfolio flows. Yet, there exists very little empirical evidence on the importance of stock markets for long-run economic development. At a more basic level, economists have neither a common concept nor a common measure of stock market development. Subsequently we know very little about how stock market development affects the rest of the financial system or how corporations finance themselves.
Stock markets are casinos where players are coming to place bets or whether stock markets are importantly linked to economic Growth, this paper reviews a theoretical literature and presents new empirical evidence. In terms of theory, a growing literature argues that stock markets provide services that boost economic growth.
. Many economists do not believe that the relationship between finance and growth is important. Robert Lucas (1988) states that economists badly overstress the role of financial factors in economic growth. Moreover, Joan Robertson (1952) where enterprise leads, finance follows. According to this view, economic development creates demands for particular types of financial arrangements, and the financial system responds automatically to these demands.
Stock Market
A stock market is a place for the trading of company stock like shares and derivatives at an agreed price. These are securities listed on a stock exchange as well as those only traded privately.
Stock market can be defined by different authors as,
Khan and rabia(1998) stated that stock market is a market on which shares of stock and common stock equivalent are bought and sold. Examples include the NYSE and the AMEX.
Robert (1988) defines a marketplace where stocks, bonds, or other securities are bought and sold. An association of stockbrokers who meet to buy and sell stocks and bonds according to fixed regulations.
The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market cap, is the New York Stock Exchange, NYSE. In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the London Stock Exchange, Paris Bourse, and the Deutsche Börse. Asian examples include the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.
Historical Background
When we think about History of stock market it stretch back to 12th century when a French agent courratiers de change stared the trade of securities. It was the Dutch, who started joint stock companies. In joint stock companies, the shareholders invested in businesses and then they shared profits as well as losses.
The Amsterdam Stock Exchange is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. History of stock market trading in the United States can be traced back to over 200 years ago. Historically, the colonial government decided to finance the war by selling bonds, in the mid 1800s, United States was experiencing rapid growth. Companies needed funds to assist in expansion required to meet the new demand. Companies also realized that investors would be interested in buying stock, partial ownership in the company.
untill 1900, millions of dollars worth of stocks was traded on the street market. In 1921, after twenty years of street trading, the stock market moved indoors.
The Industrial Revolution, which also played a role in changing the face of the stock market. New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw value in a company. This was the beginning of the secondary market, known also as the speculators market. This market was more volatile than before, because it was now fuelled by highly subjective speculation about the company's future.
