The Macroeconomic Determinants of Stock Market Development from an African Perspective

Abstract

It is widely accepted that a well-functioning financial system is crucial for the development of the economy. As such, it becomes crucial to investigate what the determinants of stock market development are. This would enable policy makers to take the necessary steps to enhance stock market development, which will in turn trigger a much-needed economic growth. This paper therefore aims at identifying the main macroeconomic determinants of stock market by using a dynamic Panel Vector Error Correction Model within a sample of Sub Saharan African countries. The results suggest that economic growth, banking development, stock market liquidity, investment and macroeconomic stability are key determinants of stock market development in the region. Interestingly , the study finds that savings have a significant and detrimental impact on the growth of equity markets in the region. Moreover, results also indicate that economic growth indirectly stimulates stock market development in the short run.