About the data
5.4
STATES AND MARKETS
Stock markets Definitions
The development of an economy’s financial markets is
size of the stock market in U.S. dollars and as a
• Market capitalization (also known as market
closely related to its overall development. Well function-
percentage of GDP. The number of listed domestic
value) is the share price times the number of shares
ing financial systems provide good and easily acces-
companies is another measure of market size. Mar-
outstanding. • Market liquidity is the total value
sible information. That lowers transaction costs, which
ket size is positively correlated with the ability to
of shares traded during the period divided by gross
in turn improves resource allocation and boosts eco-
mobilize capital and diversify risk.
domestic product (GDP). This indicator complements
nomic growth. Both banking systems and stock mar-
Market liquidity, the ability to easily buy and sell secu-
the market capitalization ratio by showing whether
kets enhance growth, the main factor in poverty reduc-
rities, is measured by dividing the total value of shares
market size is matched by trading. • Turnover ratio
tion. At low levels of economic development commercial
traded by GDP. The turnover ratio—the value of shares
is the total value of shares traded during the period
banks tend to dominate the financial system, while at
traded as a percentage of market capitalization—is
divided by the average market capitalization for the
higher levels domestic stock markets tend to become
also a measure of liquidity as well as of transaction
period. Average market capitalization is calculated as
more active and efficient relative to domestic banks.
costs. (High turnover indicates low transaction costs.)
the average of the end-of-period values for the cur-
Open economies with sound macroeconomic poli-
The turnover ratio complements the ratio of value
rent period and the previous period. • Listed domes-
cies, good legal systems, and shareholder protection
traded to GDP, because the turnover ratio is related to
tic companies are the domestically incorporated
attract capital and therefore have larger financial mar-
the size of the market and the value traded ratio to the
companies listed on the country’s stock exchanges
kets. Recent research on stock market development
size of the economy. A small, liquid market will have
at the end of the year. This indicator does not include
shows that modern communications technology and
a high turnover ratio but a low value of shares traded
investment companies, mutual funds, or other col-
increased financial integration have resulted in more
ratio. Liquidity is an important attribute of stock mar-
lective investment vehicles. • S&P/Global Equity
cross-border capital flows, a stronger presence of
kets because, in theory, liquid markets improve the allo-
Indices measure the U.S. dollar price change in the
financial firms around the world, and the migration of
cation of capital and enhance prospects for long-term
stock markets.
stock exchange activities to international exchanges.
economic growth. A more comprehensive measure of
Many firms in emerging markets now cross-list on inter-
liquidity would include trading costs and the time and
national exchanges, which provides them with lower
uncertainty in finding a counterpart in settling trades.
cost capital and more liquidity-traded shares. However,
S&P Indices, the source for all the data in the
this also means that exchanges in emerging markets
table, provides regular updates on 21 emerging stock
may not have enough financial activity to sustain them,
markets and 36 frontier markets. S&P Indices main-
putting pressure on them to rethink their operations.
tains a series of indexes for investors interested in
The indicators in the table are from Standard &
investing in stock markets in developing countries.
Poor’s Emerging Markets Data Base. They include
The S&P/IFCI index, S&P Indices’s leading emerging
measures of size (market capitalization, number
markets index, is designed to be sufficiently invest-
of listed domestic companies) and liquidity (value
able to support index tracking portfolios in emerging
of shares traded as a percentage of gross domes-
market stocks that are legally and practically open to
tic product, value of shares traded as a percentage
foreign portfolio investment. The S&P Frontier BMI
of market capitalization). The comparability of such
measures the performance of 36 smaller and less
indicators across countries may be limited by concep-
liquid markets. The S&P Frontier BMI country indexes
tual and statistical weaknesses, such as inaccurate
aim to include all publicly listed equities represent-
reporting and differences in accounting standards.
ing an aggregate of at least 80 percent of the total
The percentage change in stock market prices in U.S.
market capitalization in each market, subject to
dollars for developing economies is from Standard &
the securities meeting size and liquidity thresholds
Poor’s Global Equity Indices (S&P IFCI) and Standard &
defined by three market size tiers. These indexes are
Poor’s Frontier Broad Market Index (BMI). The percent-
widely used benchmarks for international portfolio
age change for France, Germany, Japan, the United
management. See www.standardandpoors.com for
Kingdom, and the United States is from local stock
further information on the indexes.
Data sources
market prices. The indicator is an important measure
Because markets included in Standard & Poor’s
Data on stock markets are from Standard & Poor’s
of overall performance. Regulatory and institutional
emerging markets category vary widely in level of
Global Stock Markets Factbook 2011, which draws
factors that can affect investor confidence, such as
development, it is best to look at the entire category
on the Emerging Markets Data Base, supple-
entry and exit restrictions, the existence of a securi-
to identify the most significant market trends. And it
mented by other data from Standard & Poor’s.
ties and exchange commission, and the quality of laws
is useful to remember that stock market trends may
The firm collects data through an annual survey
to protect investors, may influence the functioning of
be distorted by currency conversions, especially when
of the world’s stock exchanges, supplemented by
stock markets but are not included in the table.
a currency has registered a significant devaluation.
information provided by its network of correspon-
Stock market size can be measured in various
About the data is based on Demirgüç-Kunt and
ways, and each may produce a different ranking of
Levine (1996), Beck and Levine (2001), and Claes-
countries. Market capitalization shows the overall
sens, Klingebiel, and Schmukler (2002).
dents and by Reuters. Data on GDP are from the World Bank’s national accounts data files.
2012 World Development Indicators
299