The authors study the impact of a national road construction program that brought access to previously unconnected pincodes in India, on stock market participation. Using a unique dataset on the trading behavior of over 13 million individuals, the authors ﬁnd that construction of new feeder roads to a pincode increases the number of new investors by 28.7% and the number of trades by 64.5% and the eﬀects are larger for rural vs. urban areas and for pincodes at intermediate levels of development. The stock market participation eﬀects are largely driven by new bank branch openings within three years of the road construction suggesting a ﬁnancial inclusion channel. The authors also see greater eﬀects for pincodes more distant from the nearest big city, greater portfolio diversiﬁcation, and increased trading in companies located farther away, all suggesting an information channel.
About the Seminar Series
Financial market development goes hand-in-hand with economic growth. The development of China’s capital markets in terms of size, regulations, capability, and efficiency has been impressive. China may now even lead globally in some dimensions, notably e-payments systems. Yet, China’s capital markets are still a work-in-progress facing both generic and unique challenges. Other Asian capital markets have even greater uneven development. Some in advanced Asian economies have acquired globally acclaimed reputation and capabilities while various regulatory and structural weaknesses dwarf others. Corporations and investors have been inclined to arbitrage cross-border regulatory and developmental gaps; so the very uneven status of capital markets across Asia is a policy issue for the governments in the entire region and perhaps globally. Analyzing the positive and negative lessons in the functioning of Asia’s capital markets, and identifying reforms and applications of technology that could further improve Asian capital markets’ allocation efficiency, financial inclusion, and forewarning against reforms that might cause problems can benefit practitioners, policymakers and researchers, and can contribute significantly to overall prosperity.
The ABFER and the University of Chicago’s Becker Friedman Institute China (BFI-China), in collaboration with National University of Singapore (NUS) Business School, Shanghai Advanced Institute of Finance (SAIF), The Chinese University of Hong Kong (CUHK) Department of Economics, CUHK-Shenzhen and Tsinghua University PBC School of Finance (Tsinghua PBCSF), hope to provide a virtual network to benefit researchers, policymakers, and practitioners from Asia and beyond.
All times are listed in Central Standard Time.
Wednesday, July 20, 2022
Road to Stock Market Participation
Professor, Decision Sciences, Indian Institute of Management, Bangalore
Discussant: Harrison Hong (Columbia University)