Stock Market Consolidation: Implications for Market Integration, Diversification Benefit and Home Bias

Student thesis: Doctoral ThesisPhD

Abstract

In the last three decades, many stock markets around the world have consolidated their trade platforms or signed agreements to facilitate cross-country investments. The objectives of this study are to investigate the effect of stock market consolidation on (i) the stock market integration (MI) (ii) diversification benefit (DB) and (iii) equity home bias (HB) controlling for numerous economic and stock market characteristics. We distinguish two stages of market consolidation into (i) an announcement stage and (ii) an implementation stage. The samples include 22 stock markets under six stock market consolidation groups during the year 2000-2016. We use Ordinary Least Square (OLS) panel regression as a tool to examine this effect.

First, the stock market consolidation successfully increases the MI both in the announce and implement stage. The effect of the announcement is larger than of the implementation. We also found that financial crisis, exchange rate risk, stock market performance, real convergence and monetary policy convergence are also important factors that impact MI.

Second, the stock market consolidation decreases the US investors diversification benefit among the consolidation groups that include US stock markets. On the other hand, the US DB still exist among the consolidation groups that exclude US markets. We also found that financial crisis, exchange rate risk, stock market performance, real convergence and monetary policy convergence are also important factors that affect DB.

Finally, the stock market consolidation does not have a significant effect on US investors equity home bias towards the consolidation groups that include US markets. In addition, the stock market consolidation even increases US home bias toward the consolidation groups that exclude US markets. We also found that governance, indirect cost of investment, direct cost of investment, incentive of investment, financial crisis, and size are also important factors that impact HB.
Date of Award1 May 2020
Original languageEnglish
Awarding Institution
  • University of Bath
SupervisorAnia Zalewska (Supervisor) & Simone Giansante (Supervisor)

Keywords

  • Keywords: Stock Market Consolidation; Stock Market Integration; Diversification Benefit; Equity Home Bias

Cite this

Stock Market Consolidation: Implications for Market Integration, Diversification Benefit and Home Bias
Cheewatragoongit, B. (Author). 1 May 2020

Student thesis: Doctoral ThesisPhD