Demutualization and Stock Market Efficiency a Study on Asian Economies free essay sample

Ownership is somewhat open (WFE Survey, 2005). IOSCO (2000) defines demutualization as the transformation of an exchange into a for-profit shareholder-owned company. The pace of exchange demutualization in developed market jurisdictions has been quite rapid. In the fifteen years since the first exchange demutualization took place in 1993 in Stockholm, Switzerland, 21 exchanges in developed market jurisdictions have demutualised – representing almost 40% of the membership of the World Federation of Exchanges (WEF, 2003). In contrast, the pace of demutualization in emerging market jurisdictions has been relatively slower. Available literature found that a demutualized exchange can borrow from conventional lenders such as banks. Whereas mutualized stock exchanges have to look up to their guarantor for finances (Ahmed at al,, 2011). To borrow from a bank, stock exchanges have to improve their financial policies in order to increase the credibility of the exchange which enhances the corporate governance. In addition to the advantages discussed above, access to human capital is also an important outcome of demutualization. We will write a custom essay sample on Demutualization and Stock Market Efficiency a Study on Asian Economies or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Good governance and access to economic capital assist exchanges to attract better qualified human resource (Faina and Lopez, 2006). These professionals will help to take better decisions. Better management would also increase the efficacy of the exchange by introducing better practices and policies (LSE, 2007). Demutualization would also enhance the profit motive for growth and development. After demutualization exchanges have to earn their own bread and butter. 2. Motivation and Contribution In Bangladesh, Stock indices are directed by the elected body of stock brokers where conflict of interest happens (Alam, 2012). There is very poor corporate governance in the Stock Indices that is an important reason of recent debacle of stock market (Ibrahim, 2011). As stock dealers and brokers are familiar as institutional investors and play a big rule in the capital market mechanism, they should be regulated properly. In Bangladesh, DSE conduct inspection on brokerage houses and DSE is also run by a selected committee of brokerage house, so one cannot expect proper judgment from the DSE. Study found that by the all the top investors are brokerage houses who are mainly monitored by DSE that creates many conflicts of interests. So, if brokerage houses make any big irregularity, DSE is supposed to hide it as it a member of DSE. In 2010, many positive factors along with regulatory supports (SEC, DSE) inflated the market and finally caused big losses for general investors. In case of irregularities (serial Trading, price manipulation) by brokerage houses/members, DSE had failed to make any proper investigation and also failed to inform it to SEC for regulatory actions and favored members (Alam,2012). In case of price bidding under book-building method, some members (associated to underwriter of the company) quoted very high and irrational price and DSE listed the securities of these companies without asking any question that rises about the transparency of the listing methods. Without stock exchange demutualization such conflict of interests could not be avoided. Inspired and motivated by the above mentioned reasons of inefficient state of stock market, this proposed research will be taken to assess the efficacy of two selected demutualized stock market- Bombay Stock Market and Australian Stock Market- by different Quantitative and Qualitative Methods of impact assessment in order to put some policy recommendation for the smooth transition of demutualization in Bangladesh. This research is expected to contribute both the heretical and empirical knowledge to the policy makers, investors , financial institutions , market makers to Bangladesh and to other countries who are about to demutualize their market. 3. Research Methodology The proposed research will use ve used secondary data (1997-20012) in the majority of cases from research papers and economic journals alongside with data from internet websites. For analyzing stock prices the daily stock price statistics from different international data bases like ISC, IOSCO, WEF, WORLD BANK, AND IMF. For evaluating operating performance, reports and data from the official web-sites of the sample stock exchanges will be collected. In addition, data provided by World Federation of Exchanges on their web-site www. worldexchanges. org/statistics. Methods that we used in our paper to analyze the operating and market performance are descriptive statistics for evaluating the post listing share price performance and the financial ratio analysis using the accounting data to evaluate stock exchanges market performance as well as their risk and return relationships profile. 4. Proposed Research Snapshot Abstract| Chapter One:Introduction| Problem Statement Objectives of the StudyResearch Methodology Variable IdentificationConstructing HypothesisData SourcesResearch Contribution| Chapter Two : Literature Review| Conceptual