Small European securities markets: A study of trading volume and institutional factors in the evolution of selected European markets

The thesis examines selected small national securities markets in western and central Europe under the influence of change in the structure of world financial market practice and increased information flows. Markets studied in detail and visited on one or more occasions are those of Denmark, Austria, Portugal, Hungary, The Netherlands, Belgium and two German regional exchanges, Hamburg and Bremen. Data on the German market as a whole is studied for its relevance to neighbouring small national exchanges. The formation of new markets in the Czech Republic and Slovakia is observed based on information about, and visits to, Prague and Bratislava. Market institutions, mechanisms and participants, particularly banks and brokers, are examined for their contribution to the viability and validity of each market and the realisation of development potential. The literature of price discovery, returns generation, asymmetrical information, market microstructure and investor behaviour is reviewed, as is the history of national exchanges for determinants of their present-day form and behaviour. Structured, questionnaire-based interviews with market participants, other fieldwork information and the considerable volume of contemporary press and periodical material relating to market reforms constitute the main body of evidence. Market-by-market analysis is conducted to support conclusions based on initial hypotheses about the function and purpose of small national markets and formal models of investor, borrower and broker behaviour. Trading volume is separately analysed over the longest practicable period, using time-series econometric methods for evidence of ability to reveal information about market behaviour and reliability as an income generator to sustain market-dependent broking populations and market institutions. Institutional factors are found to determine the volume of trading in the medium term and hence, via the level of income generated, to induce virtuous and vicious circles of development. In the short term, trading volume is determined by exogenous shocks and short-run market dynamics.