Capital market reform enables the capital markets to embrace new ideas and techniques affecting it.

Capital market liberalization is one such capital market reform that is adopted by various countries to strengthen their economy. A capital market is a place that handles the buying and selling of securities. This is the ideal place where both the governments and companies can raise their funds. The capital markets of all the countries have undergone a number of reforms in the past. Economic theories are made and implemented to reform the functionalities of the capital market. The prime objective behind all the policies and reforms is to strengthen the capital market of a particular country as much as possible.It has always been a big question to the economists - Whether to allow the foreign investments in the country or not? Packaged with both advantages and disadvantages, the liberalization of the capital markets has always been controversial. In the 1980s and 1990s, when the US Treasury and International Monetary Fund (IMF) tried to push world-wide capital-market liberalization, there was enormous opposition. Economists were not in the support of free and unfettered markets. Now, when the capitalist countries, developing capitalist countries, under-developed countries and a large number of socialist countries have nodded their support to the capital market reform and capital market globalization, the global capital market has evolved in a new identity. The concept of capital market is not restricted to the share and bond trading in the developed capitalist countries only but is equally influenced by the capital markets of developing and under-developed countries as well. Now, the economic or financial change in one country can affect the capital market of other country in real time. Almost all the countries are now exposed to the inter-country trades and inter-country investments. The use of internet and electronic media has added some more feasibility to the practice. Exchange of information is fast and accurate with internet. Another advantage of this system is that it brings the entire world in a single place. The capital market is one of the industries that enjoys the maximum facility of the internet service.
Last updated on : 28-Feb-2012 11:14 am

Classification of Capital Market Trends:

Primary Trends: They include bull markets and bear markets. The bull market is a situation where investors buy in order to increase capital gains in the future. In a bear market, on the other hand, the investors anticipate losses and therefore they are obliged to sell.

Price fluctuation is an important tendency of an open market. The Gross Domestic Product (GDP) and stock prices are on the rise during a bull market. A bear market exhibits negative trends; it can also be a prelude to recession.

Secondary Trends: They refer to price changes within a primary trend. These price changes are not permanent. A temporary decrease in price during a bull market is a correction. During correction, the price drop is normally 10% to 20%. The same

percentage increase is experienced during the time of a bear market rally. This refers to a transient increase in price during the time of a bull market.

Secular Trends: They are long-term trends. They usually remain for a period of 5 - 25 years. Many primary trends sequentially arranged result in a secular market trend. In such case, the bull markets are bigger and a bear market does not erase the gains of the previous bull market. In secular bear markets, the duration of a bull market is

smaller. Capital Market Theory tries to explain and predict the progression of capital (and sometimes financial) markets over time on the basis of the one or the other mathematical model. Capital market theory is a generic term for the analysis of securities.

In terms of trade off between the returns sought by investors and the inherent risks involved, the capital market theory is a model that seeks to price assets, most commonly, shares. In general, whenever someone tries to formulate a financial, investment, or retirement plan, he or she (consciously or unconsciously) employs a theory such as arbitrage pricing theory, capital asset pricing model, coherent market hypothesis, efficient market hypothesis, Model. In studying the capital market theory we deal with issues like the role of the capital markets, the major capital markets in the US, the initial public offerings and the role of the venture capital in capital markets, financial innovation and markets in derivative instruments, the role of securities and the exchange commission, the role of the federal reserve system, role of the US Treasury and the regulatory requirements on the capital market. fractal market hypothesis, or modern portfolio theory. The most talked about model in Capital Market Theory is the Capital Asset Pricing