The behaviour of emerging equity markets : a study investigating the Malta Stock Exchange

Abstract

The objective of the study was to acquire a better understanding of the behaviour of emerging equity markets. In order to achieve this objective the local scenario was analysed; therefore the Malta Stock Exchange was investigated. Historical trading activity on the MSE shows that the growth achieved over the years is mostly attributable to Malta Government Stocks. When one considers equity one can easily determine that there is a lot of room for improvement. In-depth interviews were first carried out with experienced personnel in the financial services industry. Such interviews offered guidance on the topic being studied, provided reliable results and also more flexibility to explore ideas which were not considered in the beginning of the research. In order to gather information from a wider sample, questionnaires were also distributed to personnel in the financial services industry. Following the qualitative analysis, a comparative analysis between the MSE, the Cyprus Stock Exchange, and the Bulgarian Stock Exchange was also conducted. This was done in order to have a better understanding of the progress of the MSE when compared to other exchanges. In order to investigate the behaviour of Maltese investors, quantitative analysis regarding noise trading was also completed. During the research importance was given to factors such as liquidity, trading volume and volatility. The market capitalisation was also analysed in order to have a better understanding of the growth of the MSE over the years. Other factors analysed include transparency, information asymmetry, and noise trading. A change in these factors would have an impact on the trading activity on the MSE. For instance more liquidity in the market would attract more buyers and sellers; and therefore would result in a more developed market which can also be advantageous for the Maltese economy. From the research it was concluded that, although when one considers the domestic financial structure Malta should be considered as a developed country, this is not the case when one considers the trading activity on the regulated market. From an operations point of view the MSE is considered to be developed. However when one analyses the trading activity, especially in the equity market; one can see that there is a lot of room for growth. Trading volume is considered to be low, therefore resulting in an illiquid market, and also low volatility. The research also explored more ways in which trading activity on the MSE can increase. These included suggestions such as attracting new, both domestic and international, companies to be listed on the MSE, providing more investment awareness in the local market, and also by the introduction of new investment securities on the MSE such as derivatives and Islamic finance products.