Acceso usuarios
Purpose: The purpose of this research is to review and compare the development of the three major frontier stock markets in Sub-Saharan Africa over time. The study provides some narrative around the historical development of each market as well as a theoretical backdrop for stock market development studies.
Theoretical framework: The adaptive market hypothesis was used as the theoretical backdrop for the study. The adaptive market suggests that stock markets develop in an evolutionary manner (similar to natural selection). This evolution of stock market development is influenced by changes in investors’ behavior and regulatory standards.
Design/methodology/approach: Data was collected from 1993 to 2020 on the IMF market efficiency score, the value of stocks traded, aggregate market capitalization, and the number of listed companies for the sample markets. The study used descriptive statistics and trend analysis to discuss and compare the stock market development indicators across the different selected frontier markets.
Findings: The study discovered an improvement in stock market performance across the sample period. The Johannesburg Stock Exchange was found to be the most developed of the three stock exchanges. The Nigerian Stock Exchange was second while the Nairobi Stock Exchange was third. Some factors that erode the performance of these stock markets were also discussed.
The practical and social implications: The sample stock markets are the major frontier markets, and so are often the first stop for foreign investors that want to penetrate the Sub-Saharan African markets. The performance of these markets often determines the level of foreign direct investment (FDI) and foreign portfolio investment (FPI) that flow into Africa.
Originality/ Value: Few studies have investigated the performance of stock markets in Sub-Saharan Africa. Also, the few studies that investigate the performance of these markets rarely proceed to discuss the market-wide factors that erode the performance of these markets compared to those of developed economies. Some factors like the size of the economy, low financial literacy, misplaced government policies, poor investment culture, buy-and-hold-tight attitude, and high transaction costs were identified and discussed.
