defined benefit pay-as-you-go system to a privately managed funded defined contribution system), and institutional reform.<sup>8</sup> From an academic perspective, the value added of this paper is to analyze the impact of different capital market reforms using the same framework and extend the analysis beyond domestic stock markets, including activity in international equity markets. There are a number of papers that analyze the impact of some of these reforms on certain aspects of local stock markets and on macroeconomic variables, such as growth and investment. We discuss these papers below, when describing in detail each reform covered by our study. However, these papers tend focus only on one reform and usually analyze its impact on a specific aspect of domestic stock markets, such as returns or size. We instead study the impact of six reforms on domestic markets, using three indicators of stock market development: capitalization, trading activity, and capital raising. Furthermore, none of these papers include international activity in their analyses. This represents an important limitation, given the significant participation of many countries in international equity markets.

From an academic and policy perspective, our study allows policymakers to go beyond cross-country evidence and understand the within-country impact of reforms. Although the cross-country analysis of the determinants of stock market development is very informative, it presents some shortcomings from the standpoint of each country. The relevant policy question is how capital market reforms and improvements in the enabling environment will affect a country’s stock market. Cross-country evidence might not be very helpful in this respect, as some variables are completely exogenous and beyond the control of policymakers.<sup>9</sup> And even when the government can manipulate some variables, it may be very difficult and might take a very long time for a developing country to replicate the environment existent in rich countries, which is the one thought to be optimal for finance to flourish. Even panel data analysis may be of limited assistance, as there may be little time variation in the macroeconomic and institutional environment and panel results might thus be driven by cross-country differences. In this paper, we shift the attention away from estimating the cross-sectional relation between fundamentals and stock market development, and focus instead on event studies, which show the withincountry changes in stock market development and internationalization around capital market reforms.<sup>10</sup> We view this approach as complementary to the panel and cross-country analysis documented so far in the literature.

> 8 Some of these reforms were specifically directed to improving the functioning of domestic stock markets. Others, such as privatization, pension reform, and institutional reform, were implemented due to other reasons, including reducing public expenditures and improving the business environment, but were part of an overall strategy to foster market activity and were expected to support capital market development.

> 9 The inclusion of clearly exogenous variables, such as legal origin, religion, or geographical endowments, while informative from an analytical perspective, provides no guidance to policymakers about which course of action to take.

10 Wacziarg and Welch (2003) highlight the limitations of cross-country analyses in their study of trade liberalization. They find that cross-sectional evidence shows no significant impact of trade openness on 3