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TOWARDS STRONG AND STABLE CAPITAL MARKETS IN EMERGING MARKET ECONOMIES
Abstract
This paper identifies and discusses the conditions needed for achieving strong and stable capital markets in emerging market economies, which at present remain illiquid and underdeveloped. These conditions can be grouped into four interrelated and complementary pillars: macroeconomic stability, sound banking systems, high institutional quality and an adequate regulatory and supervisory framework. Failure to strengthen any of these pillars will weaken the others. The paper also emphasises that the inability of emerging markets to issue safe assets imposes a major constraint on the resilience of their local capital markets to external shocks.
Keywords: Capital markets, emerging markets, financial stability, financial development