IS DEMUTUALIZATION A PANACEA TO SPUR INVESTORS’ PERCEPTION?

Abstract

This study considers demutualization of Pakistan Stock Exchange (PSX)and how it has influenced investors perception. The investors perception and response to demutualization is assessed under two heads namely: volume of trade as proxy for liquidity, andmarket priceas proxy for volatility. The study is layered into: country level and firm level. Pakistan used to have three stock exchanges namely: Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange. Following passing of the Demutualization Act in the year 2012, these three stock exchanges merged to form a single stock exchange named as Pakistan Stock Exchange abbreviated as PSX. The investors perception as reflected in the number of trades is assessed against country’s gross domestic product to measure demutualization impact on investment climate that prevailed in the country during the period 2014 to 2018 which is two years before and two years after demutualization. The year 2016 is the year when the process of demutualization was given final shape and being transitory period is ignored for the study. The explanatory variables used for the study include: turnover ratio, market capitalization, value of trades as percentage of GDP, and the control variables include size and age of firms included in the study. The study has revealed thatDemutualization of PSX has had statistically significant impact on liquidity and volatility.