Performance and Development of a Thin Stock Market

Abstract

We estimate historical stock returns for Swedish listed companies in a newly constructed data set of daily stock prices. Stock returns exhibit all familiar characteristics. There is little trading in the past, and we examine the effects on return measurement from missing data. Stock selection and the replacement of missing transaction prices through search back procedures or limit orders make little difference to a value-weighted stock price index, while ignoring the price effects of capital operations makes a big difference. We also study stock market development. The growth of the public sector depresses the stock market, and the process of globalization revitalizes it. Banks play an important role in the early development of the stock market. The evolution of stock ownership implies that stock ownership is a normal good.