The Measurement Of Stock Development Essay

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The Measurement of Stock Development

There are three variables that help measure the stock development in a country; Stock market capitalization to nominal GDP, Stock traded to nominal GDP, Turnover ratio.

First, with respect to measuring the stock market development, Stock trading (stock traded to nominal GDP) can be used. A rapid increase in the trading volume/value of security on an exchange is indicative of interest in the security or the market. The trading volume and value is an important indicator of the level of liquidity, the efficiency of the infrastructural facilities of a stock market and the investment culture of the populace. Liquidity is the ease with which a security is converted into cash. The activities of
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For instance, an increase in the outstanding shares of Company with market price either held constant or increased would enhance the market capitalization of a Company. Generally, the aggregate market capitalization of a stock market would show an upward trend in a bullish market while the converse would happen in a bearish market situation.

Finally, the turnover ratio can be used to measure the stock market development in a country. The turnover ratio equals the total value of shares traded on a country’s stock exchanges divided by stock market

The Measurement of Bank Development

According to the article, a positive banking development has a negative, unfavorable effect on the overall economic growth, never the less having an open financial system and good institutions can reduce the damage that bank crisis would bring to a country. The article examined why a positive banking development would cause an unfavorable effect on economic growth. Levine (2002) pointed out three reasons to why banking development would cause a negative impact on economic growth. Banks involved with intermediaries with a huge influence over firms, and this may cause a negative influence over firms. Banks have an inherent bias toward prudence, so their banking development may impede corporate innovation and growth. Bankers may become arrested by their related firms, or collude with firms against other creditors.
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