Are Regulations the Answer for Emerging Stock Markets? Evidence from the Czech Republic and Poland

Quarterly Review of Economics and Finance (2007)

37 Pages Posted: 22 Jan 2015

See all articles by Edward Stringham

Edward Stringham

San Jose State University

Peter J. Boettke

George Mason University - Department of Economics

J. R. Clark

The University of Tennessee at Chattanooga

Date Written: 2007

Abstract

Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis (2005) and Stringham (2003) suggests that securities markets have successfully developed with little government oversight, numerous authors (including Black, 2001; Coffee, 1999; Frye, 2000; Glaeser et al, 2001; Mlčoch, 2000; Pistor, 2001, and Stiglitz, 1999, Zhang, 2006) argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.

Keywords: Emerging stock market, Tunneling, Capital market

JEL Classification: G1, K2, P2

Suggested Citation

Stringham, Edward and Boettke, Peter J. and Clark, Jeff R., Are Regulations the Answer for Emerging Stock Markets? Evidence from the Czech Republic and Poland (2007). Quarterly Review of Economics and Finance (2007). Available at SSRN: https://ssrn.com/abstract=2553234

Edward Stringham (Contact Author)

San Jose State University ( email )

San Jose, CA 95192-0066
United States

Peter J. Boettke

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1149 (Phone)
703-993-1133 (Fax)

Jeff R. Clark

The University of Tennessee at Chattanooga ( email )

Department of Economics
Suite 313 Fletcher Hall
Chattanooga, TN 37403-2598
United States

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