Globalization and Stock Market Stability
14 Pages Posted: 3 May 2006 Last revised: 23 Oct 2007
Date Written: November 18, 2006
The world stock markets are moving so rapidly towards globalization, and integration of local financial markets to international financial systems and institutions through cross borders transactions. The globalization phenomenon may be a blessing and enhance national economies, or may increase pricing volatility and trading instability, due to the fact that the irrational trading, instability or crises in one market or region may move to other markets and regions as witnessed in the last two decades. Accordingly, this paper aims to discuss the issue; it examined about fifty stock markets practices, laws, and regulations including developed as well as emerging markets, and their movement towards globalization. Other new developments incorporated by the world related organizations and commissions also were considered in the study. The study found that the majority of the world stock markets adopted various aspects of globalization environment; which created new challenges reflected in the stability, and efficiency of the world stock markets, including the inefficient global integration, impairment of market efficiency, less stable market, market fragmentation, adverse effects of new legal changes, and new introduced practices. However, these negative aspects do not exist in all periods of stock trading, but they may be materialized and have adverse impact during periods of deep falling prices and unstable periods of trading. Accordingly, and to avoid the adverse affects that might accompany the world stock markets globalization, several regulations, measures and practices need to be adopted in order to keep the world stock markets work in a relevant environment.
Keywords: Globalization, Stock Market, Stability, Stock price volitality
JEL Classification: G14, G15, G35
Suggested Citation: Suggested Citation