Abstract
This study investigates whether the merger of NASDAQ and OMX could reduce the portfolio diversification possibilities for stock market investors and whether it is necessary to implement national policies and international treaties for the sustainable development of financial markets. Our study is very important because some players in the stock markets have not yet realized that stock exchanges, during the last decades, have moved from government-owned or mutually-owned organizations to private companies, and, with several mergers having occurred, the market is tending gradually to behave like a monopoly. From our analysis, we conclude that increased volatility and reduced diversification opportunities are the results of an increase in the long-run comovement between each pair of indices in Nordic and Baltic stock markets (Denmark, Sweden, Finland, Estonia, Latvia, and Lithuania) and NASDAQ after the merger. We also find that the merger tends to improve the error-correction mechanism for NASDAQ so that it Granger-causes OMX, but OMX loses predictive power on NASDAQ after the merger. We conclude that the merger of NASDAQ and OMX reduces the diversification possibilities for stock market investors and our findings provide evidence to support the argument that it is important to implement national policies and international treaties for the sustainable development of financial markets.
Highlights
The ongoing globalization process and the rapid technological advancements in telecommunications and the internet have increased competition in many, if not most, sectors around the world
This paper investigates how the stock exchange merger of NASDAQ with OMX affects the comovement between the stock markets of OMX and NASDAQ and briefly examines whether the merger reduces investor utility by reducing diversification opportunities
The principal question is, do they care about the sustainable development of investments, allowing investors to diversify their investments and reduce the risk of their investments? In this regard, we are interested in whether it is necessary to set up some national policies and international treaties for sustainable development and to implement and monitor policies for the sustainable development of stock markets
Summary
The ongoing globalization process and the rapid technological advancements in telecommunications and the internet have increased competition in many, if not most, sectors around the world. Our findings by using mean-variance (MV) and Omega ratios show that the merger does not reduce returns, yet it increases volatility by reducing diversification Another important problem is that we move forward (without any investigation from academia before) to a monopoly in terms of stock exchanges around the world. The empirical\theoretical contribution of this investigation is to provide evidence to show that because stock exchanges are running like private companies and the biggest stock exchanges are merging around the world, the diversification possibilities of stock market investors are reducing, and it will be important to implement national policies and international treaties for the sustainable development of financial markets.
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