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International Journal of Economics & Management Sciences

.: Home > International Journal of Economics & Management Sciences > 2016 > Volume 3 Number 1 > Davis Nyangara1* and Batsirai W Mazviona2

An Analysis of the Impact of Demutualization on Stock Market Liquidity

Davis Nyangara1* and Batsirai W Mazviona2
1Department of Finance, National University of Science and Technology, Bulawayo, Zimbabwe 2Batsirai W Mazviona, Department of Insurance and Actuarial Science, National University of Science and Technology, Bulawayo, Zimbabwe
Abstract :

This paper analyzes the impact of demutualization on stock market liquidity using annual data available from 24 demutualized and 26 mutual stock exchanges for the period 1990 to 2011. We use a panel data regression model to examine the nature and significance of the relationship between stock exchange demutualization and two measures of stock market liquidity (turnover rate and the value of volume traded relative to Gross Domestic Product (GDP). The findings indicate that demutualized exchanges exhibit significantly greater liquidity compared to mutual exchanges after controlling for age, size, trading technology, and level of economic development. We also observe that, world-wide, the trend has been that automation of trading precedes demutualization, and that the time between automation and demutualization has a positive but statistically insignificant effect on liquidity. The study is a remarkable departure from the traditional focus on the exchange governance effects of demutualization. Furthermore, it contributes to the literature on financial market development by documenting some of the key drivers of stock market liquidity, which in itself is a widely acknowledged driver of economic growth. 

Keywords :
Demutualization; Stock exchange; Liquidity; Automation

Date Deposited : 16 May 2016 21:22

Last Modified : 16 May 2016 21:22

Official URL: http://www.omicsonline.com/

Volume 3, Number 1, August 2016 , ISSN 2162-6359

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