Reviving the Lion City's roar: an empirical analysis of Singapore's stock market underperformance and the role of regulatory reforms on stock market success

Abstract

Singapore, a global financial hub, faces a declining stock market (SGX) with de-listings consistently outnumbering new listings. This is deemed to be a critical national issue, as the Singapore government established a task force to explore ‘bold regulatory changes’ to revive the stock market. This study analyses SGX’s performance across 71 countries (markets) using key stock market success measures: 1) market capitalisation (% of GDP), 2) turnover ratio, and 3) number of listings (normalised by population) from 2007 to 2022. We conducted a cross-sectional analysis and longitudinal analysis by constructing a composite Stock Market Performance Index (SMPI) via Principal Component Analysis (PCA) to rank stock markets’ performances. Findings show that while SGX performs relatively well in market capitalisation, it underperforms in turnover ratio and number of listings. The study is then extended to analyse the effect of specific regulatory measures on the 3 success measures from 2007-2022. We do so by conducting a random effect panel regression with Driscoll-Kraay standard errors (DKSE) across 31 markets, examining the effects of 1) short-selling freedom, 2) pre-IPO profitability, 3) national price-to-earnings ratio, 4) the existence of an independent national securities and exchange commission, and 5) stock market connectivity. Results show that short-selling freedom significantly affects market capitalisation and turnover ratio, pre-IPO profitability affects market capitalisation, national price-to-earnings ratio affects all 3 measures, and the existence of an independent national securities and exchange commission affects market capitalisation. Surprisingly, the stock connect programs show no significance for all measures in our results. These insights inform policy recommendations for revitalising SGX’s market vibrancy and listing attractiveness.