- 31 -

our previous analysis, we considered the interactions of different asset markets and hence, the real return on money and quasi-money also appear in our regressions. We expect that the higher the real rate of return of money (the lower the inflation rate), the higher the availability of liquidity would be for transactions purposes, hence, value traded should increase. On the other hand, a higher real rate of return on quasi money dries out liquidity from the market, increasing the cost of financing; hence, it reduces value traded. Finally, we also expect that a higher real rate of return on stocks would bring an increase in value traded. Nevertheless, this time we treated these variables as exogenous. Results are reported in the following table.

**Table 7: Value traded**

||**O**|**LS**|**E**|**C**|**OL**|**SI**|**E**|**C1**|
|---|---|---|---|---|---|---|---|---|
|**Variables**|**Coeff.**|**P-val.**|**Coeff.**|**P-val.**|<br>**Coeff.**|**P-val.**|**Coeff.**|**P-val.**|
|**o**|**1**2.7098|0 .0 00|13.7175|0 .0 00|15.7683|0.000|12.9980|0.000|
|**_r_**|-6.0395|0.001|-4.5166|0.010|-9.3095|0 .0 00|-6.1822|0.001|
|p|-0.0168|0.883|0.0565|0.498|-0.0771|0.535|0.0632|0.492|
|Cs|0.6724|0 .0 00|0.2576|0.343|||||
|**nI**|6.9300|0.001|18.4098|0.000|||||
|**cssh**|||||1.4336|0.000|1.2312|0.010|
|**nlish**|||||16.3281|0. 009|41.6533|0 .0 00|
|**duml**|-0.5675|0.001|-1.2801|0 .0 00|-0.6013|0 .0 00|-0.9269|0.007|
|**constant**|**-1.**2782|0 .0 00|-1.1523|0.003|-0.5320|0.015|-0.9060|0.011|
|**obs**|285||285||233||233||
|**R2/1**|0.43||0.39||0.44||0.39||
|**JS/2**|35.15|0.000|263.93|0.000|29.94|0.000|206.17|0.000|

Notes: **/1** The R2 statistics reported is the squared correlation between fitted and actual values for EC and ECI. /2 The joint significance test is distributed as an F(6, 278) in OLS, as an F(6, 226) OLSI, and as a Chi2(6) in EC and in ECI.

OLS is our base regression for value traded where the log of value traded over GDP<sup>3</sup> l is regressed on the real return on money (0), the real of return on quasi-money (r), the real rate of return on stocks (p), the share of contractual savings financial assets over GDP (cs), the share of non-life insurance financial assets over GDP (nl), and a step dummy for OECD countries (duml). Notice that the price variables real rate of return on money and real rate of interest on quasi-money, and the institutional investors' variables have all the expected sign and are significant. On the other hand, the real rate of return on stocks is not significant. EC is an error component model where we take into account of country heterogeneity. Notice that now cs is not significant.

OLSI and ECI repeat the exercise just carried out where we substituted the shares of financial assets of contractual savings and non-life insurance companies over GDP with the proportion of stock held by these institutions over total financial assets. In this second formulation, the portfolio distribution of both contractual savings and non-life insurance companies has a positive impact on value traded.

The data seems to indicate that the development of both contractual savings and non-life insurance companies represented by the share of financial assets over GDP has a positive effect on market capitalization, as discussed above. The same cannot be said for

> 31 The log-linear functional form was preferred to a linear functional form on the basis of preliminary tests on functional form.