Chisomo Mandala

This paper empirically examined determinants of stock market development in Common Market for Eastern and Southern Africa (COMESA) countries. Specifically the study sought to examine the macroeconomic, financial and institutional determinants of stock market development in COMESA. It focused on a sample of 8 countries in COMESA which have stock markets covering the period from 2003 to 2009. The study followed Cadeleron-Rossell regression model where panel data analysis techniques in Stata 11.0 were used. From the analysis the study found out that macroeconomic variables such as GDP per capita, savings, investment and inflation as well as financial variables such as stock market liquidity and credit to the private sector were the major determinants of stock market development in the COMESA trading bloc.

Real interest rate and rule of law were found to have no impact on stock market development for COMESA countries. The study further found out that institutional factors such as political risk had great impact on stock market development, specifically corruption was found to be a main hindrance of stock market development in COMESA. The study therefore recommends that policy makers in COMESA countries should initiate and implement sound policies aimed at maintaining macroeconomic and financial stability. Specifically maintaining low inflation rates, encouraging savings and investment as well as encouraging stock market liquidity and bank development. Finally, they should establish good institutional frameworks which encourage zero tolerance to corruption.