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A stock market performs a number of important roles in theeconomy. As a financial intermediary, it enables firms to raise capital. Indeveloping countries implementing privatization, share issues in domestic andinternational markets, has been the second most commonly used method afterdirect sales. A stock market also helps promote growth and employment byproviding finance to businesses, which would have had difficulty raising fundsotherwise. From the investorsâ?? perspective, a stock market provided them withan opportunity to diversify their portfolio of assets and thus reduce theirrisk. A stock market is also important in that it performs both a screening anda monitoring role. Any new information on a listed company will be quicklydiscounted into the stock price, which may indicate profitable investmentopportunities. Stock price changes also assist in monitoring the performance ofmanagers of companies listed on a stock market.
Traditionally, studies on stock markets have focused ondeveloped markets. The issue most often tackled in these studies has been thatof the efficient market hypothesis (EMH), which is the idea that prices ofsecurities quickly and fully reflect all available information. This issue isof primary importance to investors because if a market is characterized asefficient, the likelihood is that no investor can earn abnormal returns.
Over the last decade, researchers have given a growing attentionto the emerging markets, which have seen their share of world markets increasenoticeably. While the issue of efficiency remains dominant in the studies on thesemarkets, that of their integration is also attracting great interest. Thisissue involves the idea that if a market is not integrated in internationalmarkets, there are diversification opportunities for investors.
Regarding Arab stock markets, there is still a significant lackof studies on issues relevant to the investment decision. This may be due tothe fact that some of these markets are not yet fully accessible tointernational investors and/or that detailed information is not yet availableto the level researchers and investors are accustomed to in other markets.Whatever the obstacles to research on Arab stock markets may be, much can stillbe done under the current circumstances.