The structure of equity markets across countries: Scarcity and stock valuations

- Dataset of the industrial composition stock markets and economy for 26 countries.
- Composition of stock markets is far from representative of that of the economy.
- Industries underrepresented relative to the economy exhibit higher valuations.
- More important when informational issues make it more difficult for firms to list.
- Firms can be used as proxies for unlisted firms in the same sector.

We build a dataset of the industrial composition of the stock market and the economy for 26 countries. This composition is far from representative of that of the economy, particularly in less-developed markets. Based on this, we build a measure of scarcity of investable securities and show that industries that are underrepresented relative to the economy exhibit higher valuations. Moreover, valuation differences are shown to be more important when informational issues make it more difficult for firms to get listed.