An Analysis of the Impact of Demutualization on Stock Market Liquidity
- *Corresponding Author:
- Davis Nyangara
Department of Finance
National University of Science and Technology
E-mail: [email protected]
Received Date: January 15, 2014; Accepted Date: February 19, 2014; Published Date: February 25, 2014
Citation: Davis Nyangara and Batsirai W Mazviona (2014) An Analysis of the Impact of Demutualization on Stock Market Liquidity. Int J Econ & Manag Sci 3:165. doi: 10.4172/2162-6359-3-1000165
Copyright: © 2014 Davis Nyangara, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
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.