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Are Banks and Stock Markets Complements or Substitutes?

Malay K. Dey

No 2007-WP-04, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: We examine the determinants of stock market and bank liquidity in an economy in a SUR framework in which stock market turnover and available bank credit denoting access to long and short term capital respectively are interdependent and the errors are correlated. The SUR results suggest that available bank credit and stock market turnover are inversely related to each other, confirming their substitutability in terms of external financing needed by corporations. Other significant common factors for stock market turnover and available bank credit include stock market growth, legal origin, and whether the stock market is developed or emerging, an indicator of path dependence. These common determinants of stock market and bank liquidity are generally stable over time.

Keywords: Stock exchange liquidity; growth; bank credit (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-01
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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