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With globalisation financial development has spawned across the world creating a two-tiered funds market, developed and emerging. This paper is about discriminating the characteristics, and identifying the variables that would help an analyst to distinguish a capital market to be termed a developed or an emerging market. The financial economics literature has a vast body of reports where the terms developed and emerging are used widely. The basis of the application of the two descriptors has not been examined vigorously using some quantitative method(s) to verify if the terms used conform to verifiable characteristics. The aim of this paper is to do exactly that in the hope of identifying the variables that are associated with the developed and emerging states of a given capital market as discriminating groups.
To achieve this goal, the analysis applied is the discriminant analysis. Data were collected for a sample of markets identifying a number of characteristics of the markets as well as suggested factors that may be associated with either status of the market. The statistics from such an analysis have revealed clear indication of a number of characteristics and factors as being important for classifying a given market to be either developed or emerging. These findings, we believe, help to provide authenticity to the terms - developed and emerging - widely used by identifying the empirical basis for these terms.