The Measurement of Stock Development

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 portfolio managers, pension funds manager, and unit trust managers are capable of stimulating trading and improving liquidity. The level of awareness of investors and the number of listings could have favorable impact on the trading volume. The market float which is the proportion of number of shares available for trading is another influencing factor on trading activities.

Second, Market capitalization is perhaps the most important criterion in assessing the size of a capital market. Market capitalization equals to stock market capitalization divided by nominal GDP. To assess how big a stock market is within the national economy, the market capitalization is usually compared with the nominal Gross Domestic Product (GDP). This depicts the saying that capital market is a barometer with which to measure the state of a national economy. For individual quoted Companies, the size of market capitalization is an indicator of the market value (i.e. investor’s perception or assessment) of the Company. Thus market capitalization does fluctuate with movements in the market price of the Company’s equity and changes in outstanding shares. 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