“Competitiveness in the Ukrainian stock market and local crisis of 2013–2015” Alex Plastun https://orcid.org/0000-0001-8208-7135 https://publons.com/researcher/1449372/alex-plastun/ Inna Makarenko https://orcid.org/0000-0001-7326-5374 AUTHORS http://www.researcherid.com/rid/AAE-8453-2020 Ievgen Balatskyi https://orcid.org/0000-0001-7039-1009 https://publons.com/researcher/2455239/ievgen-balatskyi/ Alex Plastun, Inna Makarenko and Ievgen Balatskyi (2018). Competitiveness in ARTICLE INFO the Ukrainian stock market and local crisis of 2013–2015. Investment Management and Financial Innovations, 15(2), 29-39. doi:10.21511/imfi.15(2).2018.03 DOI http://dx.doi.org/10.21511/imfi.15(2).2018.03 RELEASED ON Monday, 23 April 2018 RECEIVED ON Thursday, 01 March 2018 ACCEPTED ON Monday, 16 April 2018 LICENSE This work is licensed under a Creative Commons Attribution 4.0 International License JOURNAL "Investment Management and Financial Innovations" ISSN PRINT 1810-4967 ISSN ONLINE 1812-9358 PUBLISHER LLC “Consulting Publishing Company “Business Perspectives” FOUNDER LLC “Consulting Publishing Company “Business Perspectives” NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES 25 4 9 © The author(s) 2021. This publication is an open access article. businessperspectives.org Investment Management and Financial Innovations, Volume 15, Issue 2, 2018 Alex Plastun (Ukraine), Inna Makarenko (Ukraine), Ievgen Balatskyi (Ukraine) Competitiveness in the BUSINESS PERSPECTIVES Ukrainian stock market and local crisis of 2013–2015 Abstract LLC “СPС “Business Perspectives” This paper investigates competitiveness in the Ukrainian stock market during local cri- Hryhorii Skovoroda lane, 10, Sumy, sis of 2013–2015. The following hypothesis is tested: crisis decreases competitiveness in 40022, Ukraine the stock market. The analysis is carried out for the most liquid stocks in the Ukrainian www.businessperspectives.org Exchange (UX) over the period from 2010 to 2017 using both traditional measure- ments of market concentration (Hirschman Index, Lerner Index, Comprehensive Concentration Index, Entropy Index, Gini coefficient, etc.) and some alternative meth- ods like regression analysis with dummy variables and Kruskal-Wallis test. The results suggest that the current degradation of the Ukrainian stock market is closely related with significant changes in the market concentration which are caused by the local crisis. Keywords Ukrainian stock market, competitiveness, concentration JEL Classification D41, D42, D53, E44, G10, G14 Received on: 1st of March, 2018 Accepted on: 16th of April, 2018 INTRODUCTION Stock market provides a significant impact on the economy of the country. Beck et al. (2015) using correlation analysis find evidences © Alex Plastun, Inna Makarenko, Ievgen Balatskyi, 2018 in favor of strong dependence between the trade volumes in the stock market and economic growth. Growth of the EU stock market by 1/3 causes long-term growth of the economy by 1/5. But this dependence Alex Plastun, Professor, Chair of International Economics Department, is absent for the case of less developed countries. Sumy State University, Ukraine. Inna Makarenko, Ph.D., Associate The last decade was very painful for the Ukrainian stock market. Professor, Accounting and Tax Department, Sumy State University, Internal and external shocks, global financial crisis of 2007–2009, end Ukraine. of the commodity super cycle hurt all the segments of the financial Ievgen Balatskyi, Doctor of market and stock market as well during 2008–2010. Economics, Head of the Department of Management and Financial and Economic Security, Education and As a result, in 2012, Ukraine was ranked 2nd (after Cyprus) in the world Research Institute for Business Technologies «UAB» Sumy State as the country with the biggest decline of stock market. Ukrainian University, Ukraine. stock market lost 35% of capitalization during 2012. Degradation of the stock market continued in 2013–2015. It was caused by the Russian aggression, devaluation of Hryvnia (Ukrainian national currency), catastrophic decline in international reserves, local banking crisis, and sharp decline in GDP, etc. In such conditions, Ukrainian stock market finally ceased to perform its basic functions and turned into a pale shadow of itself. Its role in This is an Open Access article, distributed under the terms of the 2016–2017 was reduced to a purely nominal – to show that Ukraine Creative Commons Attribution 4.0 has stock market. These processes are extremely negative for the whole International license, which permits unrestricted re-use, distribution, Ukrainian economy; that is why it is quite important to understand and reproduction in any medium, their real causes. In this paper, the following hypothesis is tested: cri- provided the original work is properly cited. sis decreases competitiveness in the stock market. 29 Investment Management and Financial Innovations, Volume 15, Issue 2, 2018 To do this, competitiveness in the Ukrainian stock market is investigated. The analysis is carried out for the most liquid stocks in the Ukrainian Exchange (UX) over the period from 2010 to 2017. To measure market concentration, traditional measurements of market concentration (Hirschman Index, Lerner Index, Comprehensive Concentration Index, Entropy Index, Gini coefficient, etc.) and some alternative methods like regression analysis with dummy variables and Kruskal-Wallis test are used. The remainder of the paper is organized as follows. Section 1 reviews the existing literature on the mar- ket concentration analysis and Ukrainian stock market. Section 2 describes the methodology used in this study. Section 3 discusses the empirical results. Last section provides some concluding remarks and implications. 1. LITERATURE REVIEW 3. Competition in the segments of the stock mar- ket is discussed by Smidt (1971) who analyzed Competition in the stock market is widely dis- the conditions of the effective competitiveness. cussed among academicians. Still there is no Cantillona and Yinb (2011) explore competi- any unified methodology or overall theory for it. tion between exchanges and how the organi- Expressed views are rather polar: from the ab- zational model of stock exchange can influ- solutism of stock market as a highly competitive ence the competitiveness in the market. structure with optimal resource distribution to the justification of monopoly nature of the stock According to the Efficient Market Hypothesis, market. Overall existing studies can be divided stock markets are efficient and as a result, they into 3 groups: are highly competitive. Still, there are many evi- dences in the academic literature in favor of the 1. Optimal resource allocation and high com- opposite. To assess concentration of the market, petitiveness in the stock market. Merton and both special indicators (Hirschey, 2008; Naldi & Subrahmanyam (1974) demonstrated the op- Flamini, 2014) and statistical models can be used timality of a competitive stock market, using (Mynhardt et al., 2017). Pareto optimum and restrictive limitations for the companies. Stiglitz (1981) also discussed Ukrainian stock market as a rather young struc- Pareto optimality and competition in the USA ture was recently analyzed mostly from the po- stock market. Soros (1994) and Madhavan sition of market anomalies: calendar anomalies (1996) prove the positive role of the competi- (Caporale & Plastun, 2017) and the weekend effect tiveness for the stock markets. (Caporale et al., 2016), overreactions (Mynhardt & Plastun, 2013). As a result, for the Ukrainian stock 2. Market microstructure models and competi- market, there are no specific models or method- tive models in the stock market. Grossman ologies to assess concentration. And still there are and Hart (1979) explore competitive equilib- no complex studies devoted to the competitive- rium in the stock market. Talmain (2007) de- ness of the Ukrainian stock market. veloped a dynamic stochastic general equilib- rium approach to study monopolistic compe- At the same time, the case of the Ukrainian stock tition in the stock market. Models of the com- market is rather interesting, because it provides petitive stock trading are developed by Wang the most recent evidences of stock market degra- (1994), Huffman (1987), Campbell et al. (1993), dation in the world. For example, trade volumes in Scheinkman and Weiss (1986), Dumas (1989) the Ukrainian Exchange (one of the leading stock and others. Insider trading models, manipu- exchanges in Ukraine) declined by 30 times (see lation models and other models based on un- Figure 1) and stock markets actually stopped per- equal information distribution are proposed forming their basic functions. by Kyle (1985), Admati and Pfleiderer (1988), Foster and Viswanathan (1990, 1993), Dalko Sharp decrease in the volumes is accompanied by et al. (2016), Maxim and Ashif (2017). the market monopolization both for the case of or- 30 Investment Management and Financial Innovations, Volume 15, Issue 2, 2018 40 000 000 000 35 000 000 000 30 000 000 000 25 000 000 000 20 000 000 000 15 000 000 000 10 000 000 000 5 000 000 000 0 2010 2011 2012 2013 2014 2015 2016 2017 Figure 1. Trade volumes in the Ukrainian Exchange during 2010–2017 (UAH) ganizers (Table 1), financial instruments (Table 2), 2. DATA AND METHODOLOGY issuers and depositary/clearing institutions. This study is based on the data from the Ukrainian As can be seen in Table 1, stock market volume was Exchange (http://www.ux.ua/) for the period concentrated in the stock