Globalization and Stock Market Stability

Abstract

The globalization of the world stock markets may be a blessing and enhance national economies, or may increase pricing volatility and trading instability, due to the fact that the irrational trading in one market may spill over to other markets as witnessed in the last two decades. Accordingly, this paper aims to discuss the issue of stock market globalization; it examines stock markets practices, and regulations for about fifty developed as well as emerging markets, and their movement towards globalization. It covers introduced practices including new types of shares as well sophisticated types of control measures adopted by exchanges to cope with stock market instability. The result shows that the majority of the world stock markets have responded to various aspects of the global environment; some have positive aspects such as the reducing cost of trading, increasing liquidity as well as, transparency, and protecting inventors' interests. However, on the other hand they created new challenges reflected in instability, impairment of market efficiency, and market fragmentation. These negative aspects do not exist for all periods, but they materialize during steep price declines and unstable periods of trading. Thus, the study finds that the majority of the world stock markets adopted at least one or more of the control measures to cope with instability of stock trading, including price limits, margin requirements, and circuit trade rules