Analysis of Factors affecting The Growth of Capital Markets: A Case of The Lusaka Securities Exchange

Patson Kapusana and Dr. Austin Mwange
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Patson Kapusana: Graduate School of Business, University of Zambia
Dr. Austin Mwange: Graduate School of Business, University of Zambia

African Journal of Commercial Studies, 2025, vol. 6, issue 3

Abstract: This study investigates the key factors affecting the growth of Capital Markets in Zambia, with a specific focus on the Lusaka Securities Exchange (LuSE). The research aimed to achieve three main objectives: to determine the effect of Stock Market Liquidity on Capital Market growth, to assess the impact of Foreign Direct Investment (FDI), and to explore the perceptions of market participants regarding the challenges and drivers of LuSE’s growth. Recognized as a vital component of Zambia’s economic development, LuSE facilitates capital raising and investment opportunities. However, between 1995 and 2023, the exchange experienced notable fluctuations in both the number of listed companies and its market capitalization, raising concerns about its stability and growth trajectory. To address existing knowledge gaps, the study adopted a mixed-methods approach. Quantitative data from 1995 to 2023 were analyzed using the Vector Autoregressive (VAR) model through STATA 15.0, focusing on the dynamic effects of Stock Market Liquidity and FDI. The analysis found that Stock Market Liquidity had no significant short-run effect on market capitalization, with p-values of 0.379 and 0.998. Conversely, FDI showed a significant positive influence in the second lag (coefficient = 0.2194731, p = 0.043), indicating a delayed yet meaningful contribution to Capital Market growth. The qualitative component, based on structured questionnaires from randomly selected participants, revealed investor education and regulatory inefficiencies as major concerns. Specifically, 35.7% of respondents rated investor education poorly, while 57.2% believed that this lack led to poor investment decisions. Over half of the participants criticized the regulatory framework for being unclear and rigid. Although most respondents did not view limited product offerings as an immediate barrier, some acknowledged the long-term importance of market diversification. The study concludes with strategic policy recommendations to support LuSE's development and enhance Zambia's overall financial market performance.

Keywords: Capital Markets; Stock Market Liquidity; Foreign Direct Investments; Lusaka Securities Exchange; Regression Analysis; Capital Market Growth (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:cwk:ajocsk:2025-62

DOI: 10.59413/ajocs/v6.i3.7

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