The characteristics of the financial system of developing countries : a study of the Thai stock market

This is an econometric study of development finance with an emphasis on empirical investigation of the financial market. Applying econometric methods to investigate empirical characteristics of the financial market and its components such as the stock market is an important area of study in finance, for academic, policy formulation and investment planning purposes. There are substantial differences in the operation and characteristics of financial markets in developed and developing countries in terms of efficiency, stability, and the effectiveness in promoting economic development. There are different views about the performance and characteristics of the financial markets in both developed and developing economies. One view stresses the possibility for efficient operation of the market leading to efficient allocation of resources while the other highlights the real life evidence of market failure, weak-form EMH, market inefficiency, and existence of speculation, bubbles, anomalies, etc. This thesis undertakes an empirical study of the characteristics of a developing Asian financial market as a case study by applying the methods of financial econometrics to investigate whether and how these characteristics correspond with these views. Emphasis is placed on understanding those special characteristics of the financial system of developing countries which can cause financial market failures, and the existence of market imperfecfions such as asymmetric information, adverse selection and moral hazard. The stock market plays a major role in a developing economy's financial system. While focusing on Thailand as a case study, this thesis provides both the researcher in quantitative financial economics and the stock market investor, with an understanding of the financial issues of a developing economy's stock market such as market efficiency, valuation, predictability, speculative bubbles, anomalies and volatilities