Abstract
This study examines the factors affecting the development of emerging capital marketsthecase of Nairobi Stock Exchange. The study covered the period 2005-2010 on all listedcompanies in NSE. However, despite various measures instituted by the government atdifferent times, performance indicators show a relative poor performance of the NSEcompared to other emerging stock markets. These include: low turnover ratio, low marketcapitalization to GDP ratio and low value of stock traded to GDP ratio. This study wastherefore designed to identify factors affecting the development of emerging stockmarkets-The case of Nairobi Stock Exchange.A case study design was used at finding out the factors affecting the development of anemerging Capital market. However, descriptive and regression approach was used in dataanalysis and secondary data collection method was used. The study establishes both theexternal (macro economic and social cultural factors) and market (legal, regulatory andInstitutional) factors which have constrained the development of the Stock Market.However, there are some variables which didn’t clearly show the above relationship,namely macroeconomic stability-inflation and private capital inflows. It can therefore beconcluded that stock market development is determined by stock market liquidity,institutional quality, income per capita, domestic savings and bank development.Using the regression analysis, the study established that 85% of stock marketdevelopment is determined by: stock market liquidity, institutional quality, income percapita, macroeconomic stability-inflation, domestic savings and private capital flows andbank development. The study recommends NSE needs to be developed further to enhancedomestic resource mobilization. Various policies and programs that affect stock marketdevelopment such as regulation of institutional investor and privatization need to beaddressed. The policy makers should consider reducing impediments to stock marketdevelopment by easing restrictions on international capital flows. NSE should play anincreasingly educational role and CMA should also change its approach from heavyhanded type to more productive.
Publisher
School of Business, University of Nairobi
