Macroeconomic factors and stock market development in sub-Saharan Africa: does the measure of stock market development matter?

Abstract

We examine the impact of macroeconomic factors on stock market development in sub-Saharan Africa. More specifically, we examine the sensitivity of the impact of macroeconomic factors on stock market development to the choice of measure of stock market development. We apply the Feasible Generalised Least Squares (FGLS) estimator on a panel dataset of 12 countries over the period 2000–2015. The empirical results indicate that income, trade openness, financial openness, macroeconomic instability, financial intermediary development, savings, and investment influence stock market development. We provide evidence to suggest that the impact of macroeconomic factors on stock market development is sensitive to the choice of measure of stock market development. The implication of our findings is that the multidimensionality of stock market development should not be jettisoned in making policy prescriptions for stock market development in sub-Saharan Africa.

Keywords:

• Macroeconomic factors
• stock market development
• sub-Saharan Africa
• feasible generalised least squares estimator

Notes

Disclosure statement

No potential conflict of interest was reported by the authors.

Data availability statement

The data used in this study are available on request.

Notes

1 Reed and Ye (2011) note that the FGLS estimator is appropriate for only T > N panels.

2 Rajan and Zingales (2003) use number of listed companies as an alternative to stock market capitalization. This is because stock market capitalization has been criticized for being sensitive to changes in relative valuations.

Additional information

Notes on contributors

Olufemi Adewale Aluko

Olufemi Adewale Aluko holds a Master of Science degree in Finance from University of Ilorin. His research experience spans over five years and has more than 15 articles appearing in peer-reviewed journals.

Funso Tajudeen Kolapo

Funso Tajudeen Kolapo has a PhD in FInance obtained from the Department of FInance, Ekiti State University, Ado-Ekiti and he is Senior Lecturer in the same department. His areas of research interest include Corporate Finance, Bank Management, and Development Finance.