Essays on Balkan frontier stock markets

Abstract: This dissertation consists of four chapters dealing with Balkan frontier markets, their design and performance. Chapter I provides an introduction to these markets and presents additional information necessary for the reader to understand these markets. Chapters II-IV present empirical research related to topics of: privatization, liquidity, liquidity premium, order book transparency, and price discovery.Chapter II studies the privatization of several large state-owned enterprises, in Croatia and Serbia, and the effect that their subsequent listing had on the respective market’s liquidity. The listings are found not to have a systematic effect on market liquidity despite the differences in the design of the privatisation programme between Croatia and Serbia.Chapter III studies the liquidity premium. By forming portfolios based on liquidity levels and subsequently obtaining the monthly returns of those portfolios a liquidity premium is shown to exist in these markets. However, in the case of Romania a negative liquidity premium is found. Formal asset pricing models and tests show that liquidity levels are an important factor in explaining portfolio returns in these markets.Chapter IV looks into the market microstructure of these markets. A difference in the level of pre-opening order book transparency provides an opportunity to test whether this difference affects the efficiency of the opening price in these Balkan frontier markets. It is found that in Bulgaria, which has an opaque pre-opening order book, the levels of price discovery at the opening of the trading period is significantly higher than in other markets. Similarly, in Serbia which has a transparent pre-opening order book the level of price discovery at the opening of trading is lower than in other markets. Finally a decrease in the level of transparency of the pre-opening order book in Bulgaria has led to an increase in the level of price discovery at the opening of trading.