Abstract
In developing markets, new regulations are imposed to protect investors, to assure fairness and to enhance trust through controlling all types of market abuse. In addition, these regulations are imposed to enhance the overall market performance and efficiency. Market liquidity is one of the main pillars used to measure market overall performance. In this paper, the authors attempt to analyze market liquidity before and after the passage of the Capital Market Authority Law of 2010 (CMA), aimed at enhancing investors’ confidence and reinforcing better disclosure quality and accountability for Kuwait public companies. By introducing six liquidity measures that captures market depth, turnover, and volatility, the authors documented highly significant deterioration in all the measures following the CMA Law with more profound effect on smaller firms. The researchers concluded that overstated regulations in developing markets, in spite of its goal of improving market overall performance, structure, enhancing investors’ protection, and market integrity, can have an adverse effect on market efficiency.
Highlights
The stock exchange is the center of attention in a country’s economy
We focus on the liquidity aspect of the market, because it is documented that better quality of disclosure improves market liquidity through reducing information asymmetries across investors (Heflin et al, 2005)
One of the main and examine whether this relation is affected reasons for this increase is attributed to the rejecby size of the company, or its sector in the pre- tion of many legal cases filed by the Capital Market Authority Law (CMA) against post CMA Law periods
Summary
The stock exchange is the center of attention in a country’s economy. Over the years, exchanges are the first to react to any financial crisis and always reflect the status of the economy. Sound market regulations act as a tool to enhance market efficiency and investor’s confidence. In Kuwait, the passage of the Capital Market Authority Law (CMA) in 2010 introduced an important event that changed the financial market structure and regulatory environment. Kuwait Boursa was originally established in 1983 by an Ameeri Decree to restore market stability and confidence after al-Manakh financial crisis. The MC is considered a board of directors with no efficient enforcement or monitoring arms It was very essential for Kuwait at that time to establish an independent regulatory body with a wide range of powers/authorities to provide proper oversight to the market. With the CMA Law, an independent regulatory body was created to oversight the securities market.
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