Empirical Determinants of Derivative Markets in Asia, Latin America and Sub Saharan Africa

Abstract

The paper examined the relationship between the derivative markets and financial markets depth, efficiency, stability and access in Asia, Latin America and Sub-Sahara Africa.  A panel logit model was applied from the period 2009 to 2017 on the financial market development data collected for countries in Asia, Latin America and Sub-Sahara Africa. The results of the panel logistic regression model positively revealed that derivative markets are influenced positively by the improvement to financial access (measured by stock market capitalization to GDP) and financial efficiency (measured by net interest margin) of the financial markets of the regions studied. However, an examination of financial depth and financial stability were observed to have an adverse propensity for the derivative market development. Therefore, countries in Asia, Latin America and Sub-Sahara Africa are recommended to significantly focus on improving financial efficiency and financial access within their respective financial markets. Further a document review was carried on the publications of the Committee of Global Financial System (CGFS) and Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlement (BIS). It is recommended that policy makers must promote greater respect for market autonomy, strengthen legal and judicial systems, boost regulatory independence and effectiveness, deepen the domestic investor base, pursue bi-directional international participation while preparing for spill overs and develop robust financial market infrastructure to facilitate the establishment of vibrant derivative markets.

Keywords:Bank for International Settlements (BIS), Derivative markets, financial access, financial depth, financial efficiency, financial stability and panel logit model.

DOI: 10.7176/RJFA/13-18-03

Publication date:September 30^th 2022