The Future of Stock Exchanges in Emerging Economies: Evolution and Prospects

Financial markets, and especially stock markets, have grown considerably in developed and developing countries over the past two decades. Better fundamentals (higher economic growth, more macro stability), structural reforms (notably privatization of state-owned enterprises), and specific policy changes (notably domestic financial reform and capital account liberalization) have aided in their growth. Globalization has also advanced, with increased cross-border capital flows, tighter links among financial markets, and greater commercial presence of foreign financial firms around the world. An element of the globalization trend has been the migration of stock exchange activities abroad, particularly from emerging markets. Many firms from emerging economies now cross-list on international exchanges. Depository receipts (DRs), for example, are increasingly popular instruments. 1 According to data provided by the Bank of New York, $533 billion The authors would like to thank their discussant, Ken Kavajecz, and Andrew Karolyi, Benn Steil, Ruben Lee, and conference participants for very useful comments. They would like to thank Ying Lin, Francisco Vazquez, and especially Tatiana Didier for research assistance. For help with the data, they are grateful to Pamela Dottin, Monica Erpen, Dori Flanagan,