Economics. Investment activity and capital markets.

Post-graduate, Bogach Dmitry

National Mining University

Analysis of changes in the structure of modern stock markets, their dynamics and interdependence

Over the last decade, the global economy is determined by a number of new trends. These primarily include the technological revolution caused by the widespread use of computers and new method of communication which led to radical changes in production, trade and especially in the financial sector, especially in the equity markets. To develop investment strategies, improving the management of the stock market and rationalization of interaction is necessary to understand the trend’s changes in the structure of capital markets and their dynamics.

The current stage of development of economic ties across the world is characterized by significant changes in the global investment process. Regularity and large scale movement of investments between domestic and international stock markets give a rise to a new phenomenon in the field of international investment - financial globalization, which leads to changes in the structure of markets and the emergence of distinct relationships between their main indicators. Only understanding trends in change of market structure can provide a reliable estimate of their condition. The aim of the study is to describe the changes in the structure of modern stock markets and dynamics of their development.

The globalization of financial markets , the development of computer and telecommunications technologies have exacerbated competition , resulting in stock exchange have to carry out large-scale investments in new technologies in order to improve competitiveness by offering new services to attract new companies - issuers of new members and a broad range of investors.

Recently, as the facts show, a number of exchanges have changed their organizational - legal form in order to strengthen internal architecture to compete with other international markets. There is a tendency of transition from form of associations and organizations which governed by special regulations, to joint-stock company type, as the result their membership base framework have become more open and diverse.

Research different markets, organized by Members of the International Federation of Stock Exchanges, show that their activity is concentrated mainly on traditional stocks and bonds. Not surprisingly, 98% of exchanges form the equity markets, 82% - bond markets. Thus, revenues of stock exchanges consist principally from exploiting common stock products - stocks and bonds. Markets of derivatives - yet under-represented, especially given tremendous development in the world trading of futures and options since the mid 80’s.

Structure of capital which is involved in the equity markets over the last century, was distributed, mainly, to the U.S. market (fig.1).

Figure 1. Changes in structure of capital which is involved in the equity markets 1899 to 2010.

The largest stock market - the U.S. market, which faces some challenges, in particular, such as increased competition from other market parties, including private trading systems and the Internet. This external pressure forcing exchanges to adapt its internal structure to changing influences.

Currently the stock market was struck by a deep crisis. It was caused by a complex of both objective and subjective factors. The world continues to operate many exchanges and trade organizations, whose future is now very uncertain. Unlike the stock market, which in one form or another will operate fate trade organizations may be more dramatic. At this stage the currency factor is increasing in the operations of global stock markets. The instability currencies rates of leading Western countries have a significant impact on the movement of financial flows between the markets of the U.S., Western Europe and Japan. Currently, there is virtually synchronous rise or drop in the national securities markets of different countries (fig. 2), which can lead to increase the scale and duration of oscillation cycles of rates movement.

Figure 2. Comparison vibrations major stock markets around the world.

Synchronicity in motions of rates is provided by information transparency of national stock markets, high speed information transfer, a significant amount of cross-border securities transactions, the increased role of institutional investors, the openness of national stock markets on which active role is played by foreign participants who act as issuers and investors.

Under conditions of high volatility, the financial risks of economic agents are repeatedly increasing. To determine the most stable market, researchers should perform a comparison of levels of volatility major stock markets (Figure 3). From figure 3 we can see that the most stable is the U.S. stock market. It is the most capacious market and factors which can destabilize it, arise in the global economy very rare. Therefore, the development of models for the management of investment portfolios should be based on the U.S. stock market.

Figure 3. Comparison of the volatility of major stock markets in the years 1987-2011

The U.S. stock market serves mainly domestic investors and issuers. Share of non-residents in the U.S. market is much lower than in any other national stock market. The impact on the situation on the U.S. stock market provides state of the U.S. economy.

The U.S. stock market is dependent on the inflow of foreign capital. From the inflow of foreign capital into the U.S. market depends on the position of the dollar in world currency markets. Due to the huge deficit of trade balance and balance of payments deficit on current account, for the balance of supply and demand of the dollar on the world currency market, daily more than 1 billion of foreign capital should come to the U.S. market.

World stock market develops in cycles. Globalization of equity markets increases their interdependence. At the national stock markets there is almost synchronous rise or fall rate of securities. The depth of the drop in stock price is determined by their overvalued rate. Development of new technologies leads to blurring of geographical origin of the different market members. These features should be used when developing investment strategies based on market neutrality. Because of the stability and liquidity indicators should be used U.S. markets , then further consideration should be based market Nyse, Nasdaq and CME.

In the future, as continuation of the investigation, perhaps consideration of national stock markets as a global, and finding of new interdependencies between the stock market, commodity market and derivatives in modern conditions.

Concluding the review of trends in changing patterns of stock markets should be noted that the situation prevailing at the time is unique. The role and scope of the stock markets have become unprecedentedly high. The structure becomes more complex in terms of participants and used tools, transactions in the market becomes extremely rapid. As a result, a comprehensive analysis of structural changes of stock markets in a globalizing world economy and its main trends and dynamics is defined.

Literature:

1. Alekhine B., Securities Market, UNITY-DANA, 2004.

2. Schetinin V., Economic diplomacy, Moscow, 2001.

3. Bychkov A., The world market for securities: institutions, tools and infrastructure, Dialog-MGU, 1998.