Integration of Kuwait Stock Market into the Global Market - Problems, Challenges, and Opportunities - Thesis Proposal Example

MANAGEMENT DISSERTATION PROPOSAL PROFORMA Shaima S. Al-Foudari Number: 15278623 Your rooms: RMT room: UKL1.MBFRMT 1124.201 DA Classroom: UKL1.MBADST.20100701.280 Student Support Manager (SSM) & Email Address: Name: Stephanie Austin eCampus Email: Stephanie.Austin@ohecampus.com Time Zone: (Your Local Time) and also GMT+3 How Do We Contact You by Email? Your eCampus email address: shaimaa.alfoudari@my.ohecampus.com DISSERTATION ADVISOR (and eCampus email): Dr. Rachel Anderson eCampus email: Rachel.anderson@my.ohecampus.com GDI (and eCampus email): Michail Koubouros eCampus email: Michail.koubouros.my.ohecampus.com Faculty Manager (and eCampus email): Will be provided by the DA / GDI to the student PROPOSED DISSERTATION TITLE: : Integration of The Kuwait Stock Market into the Global Market : Problems, Challenges and opportunities: An Empirical analysis" ETHICAL CHECKLIST COMPLETED (yes or no)? Yes Degree Programme: MBA in Finance & Accounting Specialization Track: General _______ Finance ---X--- Marketing_______ [Please check as appropriate] Other___________________ (please specify) DATE: January 10, 2012Aims of dissertation Background of the research Financial markets across the world have been reporting increasing integration within the as well as across different boundaries. There are several factors that have drastically grown the financial markets in the last decades particularly in the developing countries and some of these factors are globalization, deregulation and advancement in technology (Abraham, Seyyed, and Al-Elg, 2001). Financial markets around the world are not uniform and this is the reason why an investor is able to make more profits then he should have by capitalizing on the opportunity created because of differences in prices (Masih, and Masih, 2002). Gain of one investor would result in the loss of another. However, if these markets are integrated and made uniform then an investor would not be able to make such gains (Stulz, 1981). With the passage of time, financial markets around the world have being integrated among themselves. The term market integration is referred to as a market where there are no obstacles for investors like legal restrictions, taxes, transaction costs etc (Solink, 1974). There are several advantages or benefits for integration among stock market and this is the reason why investors, financial analysts as well as policy markets have been paying considerable attention towards this subject. Some of the most important advantages of market integration are that investors investing in different parts of the world would expect the same amount of return from the investment as arbitrage opportunities would not exist. Also as the expected return would be the same therefore if an investor would like to earn higher return then it would have to take more risk and thus reward to risk ratio would be balanced. Also because of market integration, the overall economy becomes more stabilized. It also encourages more people to make investment as there would be fewer chances of loss of investment as the overall productivity of the country would improve. If the Kuwait market is integrated with the global financial market, then the overall productivity and efficiency of the country would improve and more investment opportunities would emerge in the country. Also this would encourage more local business as well as foreign investors to invest in this market thus the GDP of the country would improve. These are the most important benefits that Kuwait market or any other market would experience if the financial market is integrated with the global market. Integration of financial market has become an important topic in today’s world as investors are able to invest in different markets in order to make the most of the opportunities prevailing in different regions (Kearney, and Lucey, 2004). Different scholars and researchers have been focusing on this topic and considerable amount of research has already been done in order to analyze the impact of integration different financial markets with the global market. Both pros and cons of integration of financial market of different countries have been analyzed by several scholars and researchers. Research Questions The research questions which will be studied and explored in this dissertation are as follows: 1. What are the main advantages that Kuwait market will observe as Kuwait Stock Market (KSE) becomes more liberalised and integrated into the global capital or stock markets? 2. What are the current challenges and opportunities KSE is facing, and how can these be maximized positively? 3. What are the key policy recommendations capable of enhancing the KSE performance as one of the leading emerging stock markets? Aims and objectives of research study The main aims and objectives of this research study are as follows: 1. To examine the impact of integration of Kuwait Financial market with the global market. 2. To identify the problems, challenges and opportunities that Kuwait would have with the integration of global market It is expected that the integration and liberalisation in the Kuwait Stock Market will contribute in improving the condition and economic growth of the stock market and country. This research will allow the researcher to investigate and analyse that whether this integration is in favour of the country or not. To identify the problems, challenges and opportunities that Kuwait would have with the integration of global market.market. LITERATURE review Financial markets have been defined as a place where buyers and sellers participate in order to trade their assets which might be bonds, equities, currencies and even derivatives. In financial markets prices are transparent and there are certain regulations and rules for trading of assets. The prices of assets are determined by different forces that affect the market. In some markets there are restrictions on the participants as not everyone is allowed to participate in trade; restrictions might be because of geographical location of the participant, knowledge of the market or even the investment an investor would like to make. Integration of financial market has been defined by National Bureau of Economic Research as markets where domestic investors are allowed to buy foreign assets and domestic assets can be bought by foreign investors. Countries which are completely integrated with the global financial market, investors expect same return on their investment regardless of their location (National Bureau of Economic Research). If the financial market of any country is not completely integrated with the international market then it creates different opportunities for investors and therefore arbitrage opportunities exist in such regions and investors are able to capitalize on these opportunities and make more profits than they would have if the market had been integrated fully with the global market. The main advantages of market integration are; market integration is helpful as it provides more opportunities for investors to share their risk. Secondly, market integration helps in financially stabilizing the market by encouraging more investors and improving competition. According to Tai (2007) the cost of capital and volatility in prices is reduced. Market integration also helps in improving productivity of the country as it increases savings, improves investment and thus it leads to economic growth of the country (Levine, 2001). The other advantage of financial market integration is that it promotes adaptation of advance technology thus reducing cost and improving efficiency. Besides the advantages, there are disadvantages as well of market integration and the major risk is of contagion as it has been proved in Asia during 1997 (Jian, James, and Insik, 2003). There can be increased integration among different financial and capital markets, if all participants have direct accesses to the several markets. This requires more deregulation and liberal policies in the region. Increasing globalisation and technological advancements are supporting the process of integration among the global capital markets. This integration and liberalisation in the stock market will facilitate the country in attracting more foreign investment which in turn will initiate the process of economic growth and development. If the Kuwait Stock Market will be more liberalised and integrated it will attract more direct foreign investment in the stock market and country. RESEARCH METHODOLOGY: Research Overview: The aims and objectives of this research study are to analyse the challenges, problems and opportunities which Kuwait market faces currently and it could face if it becomes more liberalized and more integrated with the global financial markets. Therefore for this research study, current situation of the financial market of Kuwait will be analysed and then reasons identified about why the stock market of Kuwait is not more fully integrated at the present time. In addition to this, different factors that influence the Kuwait market would be analysed in order to completely integrate it with the global market. This would result in making the research study a combination of explanatory research as well as descriptive research and therefore the study can be termed as ‘descripto-explanatory’ (Saunders, Thornhill, & Lewis, 2009, p. 140). Research Methods and Procedures: Primary data will be used to answer the research questions. Secondary data will be collected through published journal articles to establish conceptual framework and identify important variables that would influence the Kuwait market. Primary data will be collected through online administered questionnaire and focus group to analyse the problems and challenges that the Kuwait market would face as it is integrated with the financial global market to establish possible relationship among variables. Data Collection and Instruments: Qualitative and quantitative approaches will be used in the research study. Quantitative data will be collected through questionnaires as well as focus group. The population from which the sample will be selected is all local organisations in Kuwait which are listed on the stock exchange and are investing in the Kuwait Stock Exchange. Online administered questionnaire will be filled by financial analysts, investors and employees in investment firms so that respondents are well aware of research questions as well as different factors that could influence the market. Total sample size for this research study would be 100 respondents and the project would have a confidence level of around 95%, with a precision level of +/- 5% along with cooperation rate of 50%. Therefore the data will be collected through 200 respondents (100/0.5), so that the research can be done on the complete data obtained from at least 100 respondents.. There is high possibility that some of the respondents do not provide complete information or will not be available for the research as the cooperation rate is estimated to be 50%, so in order to make sure that there is enough data for analysis, questionnaires will be filled by 200 target respondents. Convenience sampling has been done in order to save time and cost. Questionnaire will be filled by around 100 respondents and then interested respondents would be selected for focus group discussion. There will be 2 focus group sessions of 6 to 8 respondents and this will help the researcher in gathering qualitative data and a better understanding of the research topic and finding more in-depth answers to the research questions. Apart from this focus group will allow the researcher to cover several important aspects in relatively less time as compared interviews. The size of focus groups have been selected to 6 to 8 members in order to ensure that moderator is able to control the group discussion and also this will allow all members to present their viewpoint more clearly. This group meeting will be conducted by the researcher at a pre decided venue. Some of the organisations listed on the Kuwait Stock Exchange will be identified on convenience basis and employees of these firms will be encouraged to participate in the research study. These questionnaires and focus group will be helpful in identifying and measuring the integration of the Kuwait Capital market into the global market. Apart from this time series data will be obtained from the Kuwait Stock Exchange about the liberalisation of the market and the state of the stock market in term of investment. In this way researcher will try to analyse the impact of the liberalisation and integration on the stock market. Data Analysis & Representation: Data will be analyzed with the most appropriate and feasible methods so that the research questions are answered properly and objectives of the research is accomplished. Microsoft Excel will be used for analyzing the data and identify relationship between variables under the research study, through regression analysis and forming two variable equation. To make the analysis section easily understandable, data will be presented in graphical and tabular form. feasibility The researcher in this research study plans to gather data from sources that would be authentic and reliable so that the research findings of the research report are appropriate and results are able to reflect better about the real world. Participants of the research are selected on voluntary basis and there is force on them. Along with this it will be make sure that the information about the participants of the research study is kept confidential. All participants are first inquired whether they are willing to take part in the research project or not. Data about the performance and liberalisation of the Kuwait Stock Exchange is obtained from the up to date financial data of Kuwait Stock Exchange.. motivation for selecting this topic Throughout this Masters of Business Administration program, the researcher has been highly interested in subjects related to the finance and equity markets. Researcher has always been interested and motivated with topics related to financial and stock market and this is the reason why the topic of the dissertation or research report is based on one of the growing economies of the world, Kuwait. Also the researcher is highly interested in knowing the economic condition of different countries and by doing so, he learns a lot and thus, Kuwait as a growing country would be very helpful the researcher in making him learn. The reason for selecting Kuwait is to identify how firms in the Gulf region are operating as well as to analyze Gulf markets with a special focus on Kuwait. Meeting different people in the financial market and investment firms would be another motivation as the research will learn a lot from them as well. Besides the personal interest of the researcher on the research topic, the other two main motivational factors are to examine the existing financial market of Kuwait and identify different problems and challenges faced by the financial market of the country. timing mileposts Mileposts Description Due Date Remarks 1 Stage 1: Area of interest identified completed 2 Stage 2: Specific topic selected completed 3 Stage 3: Topic refined to develop dissertation proposal completed 4 Stage 4: Proposal written & submitted 12/01/2012 5 Stage 5: Collection of data and information 28/02/2012 6 Analysis and interpretation of collected data / information 01/05/2012 7 Writing up 01/06/2012 8 Final draft prepared – submission of dissertation 31/07/2012 9 Final deadline – nine months from classroom date 01/08/2012 References Abraham, A, Seyyed, F, and Al-Elg, A, 2001, ‘Analysis of diversification benefits of investing in the emerging Gulf equity markets’, Managerial Finance, Vol. 27, pp. 47-57 Jian, Y, James, K, and Insik, M 2003, ‘Stock market integration and financial crisis: the case of Asia’, Applied Financial Economics, vol. 13, pp. 477-486 Kearney, C, and Lucey, B 2004, ‘International equity market integration: Theory, evidence and implications’, International Review of Financial Analysis, vol. 13, pp. 571-583. Levine, R 2001, ‘International Financial Liberalization and Economic Growth’, Review of International Economics, Vol. 9, pp. 668-702. Masih, R and Masih, M 2002, ‘Long and short term dynamic causal transmission amongst international stock markets’, Journal of International Money and Finance, vol. 20, pp. 563-587. National Bureau of Economic Research. Available at http://www.nber.org/digest/jan99/w6724.html [Accessed 8 January 2012] Saunders, M, Thornhill, A, & Lewis, P 2009, Research Method for Business Students, Financial Times Prentice Hall, London. Solink, B 1974, ‘An equilibrium model of the international capital market’, Journal of Economic Theory, vol. 8, pp. 500-524. Stulz, R 1981, ‘A model of international assets pricing’, Journal of Financial Economics, vol. 9, pp. 383-406. Tai, C 2007, ‘Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets’, Emerging Markets Review, Vol. 8, No. 4, pp. 264-283. Read More