The Dynamic Relationship Between Macroeconomic and Institutional Factors on Stock Market Capitalization: Evidence from Sub-Saharan African Capital Markets

The stock market as an important segment of capital markets in sub- TSaharan African countries (SSA) has notably been affected by both macroeconomic and institutional factors. Previous studies have attributed the role of macroeconomic fundamentals to poor performance of market capitalization, with little documentation on institutional dimensions’ effect on market capitalization in the sub-region. However, a few similar studies conducted in sub-Saharan Africa are largely country specific. We use six most capitalized and oldest stock exchanges as representative sample for the period 1996 to 2016, to investigate effects of institutional and macroeconomic factors on market capitalization of selected sub-Saharan African countries. We estimate with Static panel regression analysis of Pooled OLS, Fixed Effects, and Random Effects. Our findings provide evidence that institutional and macroeconomic factors have combined significant positive effect on market capitalization on sub-Saharan African countries, while exchange rate and inflation have significant and negative influence on market capitalization, trade openness and foreign direct investment have significant and positive effect on market
capitalization. Governments of (SSA) countries should initiate policies that will improve the macroeconomic and institutional environment, thereby improving efficiency of market capitalization for better market performance.