Financial deepening and stock market returns: panel data analyses for selected developed and developing economies

Abstract

This paper analyses the effects of stock market turnover and liquidity, as measures of financial deepening, on stock market returns in selected 19 developed and 21 developing countries over 1988-2014 by implementing Pedroni's panel cointegration methodology and panel vector error-correction models. Stock market turnover contributes more to stock market returns than stock market liquidity in both selected developed and developing economies. However, the results are much weaker for developing countries than for developed countries.