Liquidity Crisis in Bangladesh
2. An Overview on liquidity crisis:
Demirguc-Kunt and Levine (1996), Singh (1997) and Levine and Zervos (1998) find that stock market growth plays an important role in predicating future economic growth in situations where the stock markets are active. The arguments of Demirguc-Kunt et al. (1996) indicate that economies without well-functioning stock markets may suffer from three types of imperfections: first, opportunities for risk diversification are limited for investors and entrepreneurs, second, firms are unable to optimally structure their financing packages and third, countries without well functioning markets lack information about the prospects of firms whose shares are traded, thereby restricting the promotion of investment and its’ efficiency.
The proponents of stock markets emphasize the importance of having a "developed" stock market in enhancing the efficiency of investment. A well-functioning stock market is expected to lead to a lower cost of equity capital for firms and allow individuals to more effectively price and hedge risk. Finally, stock markets can attract foreign portfolio capital and increase domestic resource mobilization, expanding the resources available for investment in developing countries. Recognizing the importance of stock market on economic growth, prudential authorities such as World bank, IMF and ADB undertook stock market development programs for emerging markets in developing countries during 80s and 90s and the emerging stock markets have experienced considerable development since the early 1990s. The market capitalization of emerging market countries has more than doubled over the past decade growing from less than $2 trillion in 1995 to about $5 trillion in 2005 (Yartey, 2008). As a percentage of world market capitalization, emerging markets are now more than 12 percent and steadily growing (Standard and Poor, 2005). The government of Bangladesh also undertook the Capital Market Development Program (CMDP)
Demirguc-Kunt and Levine (1996), Singh (1997) and Levine and Zervos (1998) find that stock market growth plays an important role in predicating future economic growth in situations where the stock markets are active. The arguments of Demirguc-Kunt et al. (1996) indicate that economies without well-functioning stock markets may suffer from three types of imperfections: first, opportunities for risk diversification are limited for investors and entrepreneurs, second, firms are unable to optimally structure their financing packages and third, countries without well functioning markets lack information about the prospects of firms whose shares are traded, thereby restricting the promotion of investment and its’ efficiency.
The proponents of stock markets emphasize the importance of having a "developed" stock market in enhancing the efficiency of investment. A well-functioning stock market is expected to lead to a lower cost of equity capital for firms and allow individuals to more effectively price and hedge risk. Finally, stock markets can attract foreign portfolio capital and increase domestic resource mobilization, expanding the resources available for investment in developing countries. Recognizing the importance of stock market on economic growth, prudential authorities such as World bank, IMF and ADB undertook stock market development programs for emerging markets in developing countries during 80s and 90s and the emerging stock markets have experienced considerable development since the early 1990s. The market capitalization of emerging market countries has more than doubled over the past decade growing from less than $2 trillion in 1995 to about $5 trillion in 2005 (Yartey, 2008). As a percentage of world market capitalization, emerging markets are now more than 12 percent and steadily growing (Standard and Poor, 2005). The government of Bangladesh also undertook the Capital Market Development Program (CMDP)