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An Index Methodology for Analyzing and Comparing the Development State and Trading Architecture of Stock Markets

Abstract

Before participating in a stock market, investors compare it with other stock markets. For the comparison, three factors are often mentioned in the literature: stock returns, their associated risk, and the cost of trading. The present chapter concentrates on the influence of the development state and trading architecture on the trading costs in the LAEM.38 The design of indexes has proved to be an efficient way to make comparisons between stock markets (Demirgüc-Kunt and Levine (1996), Erb, Harvey, and Viskanta (1996)). By means of indexes, it is possible to answer three questions: (1) How heterogeneous are the implicit trading costs in the LAEM? (2) How different are the implicit trading costs of the LAEM from the developed markets? And of considerable importance: (3) Which factors are responsible for the differences? To answer these questions is the chief aim of this chapter. To do so, two main indexes are constructed here: the DS-Index and the TA-Index. Because they determine the implicit costs, the focus in what follows will be on the development state and the trading architecture.

Keywords

Stock Market Stock Exchange Trading Cost Trading System Market Concentration 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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© Deutscher Universitäts-Verlag/GWV Fachverlage GmbH, Wiesbaden 2006

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