Abstract
In 2016, the performance of Capital markets in Africa experienced a downward trend. Notable among them were Zambia, Ghana and Nigeria (http://www.african-markets.com/). The Lusaka Securities Exchange (LuSE) share price index was the worst performer year-to-date, down 26.83% in local currency. Among the contributing factors cited were commodity prices as the country relies on copper for more than 70% of its export revenue and had therefore suffered from commodity prices plunged which led to weakened currencies and widened budget shortfalls (http://www.african-markets.com/). Although the contributing factors are known, their impact on the Zambian stock market is not known. This study was an attempt to establish the impact of commodity prices and macroeconomic factors on the stock market returns. Like in similar studies, Nordin et al. (2014) and Alam & Uddin (2009), we used Auto regression Distribution Lag and Cointegration analysis and the Vector Error Correction model on the variables (stock price index, copper price, oil price, interest rates, and exchange rates) for the period 2004-2016. The findings of the study revealed Interest rates, exchange rates, copper and Oil price jointly have the long and short Run impact on the Lusaka Stock Market, but individually, only interest rates and copper prices had a significant long term impact on the stock market, but in the short run only Copper and Exchange rates had an immediate impact on the stock market. One important policy implication of this study is that it will alert the authorities and the investors on the impact of commodity prices, interest rate, and the exchange rate on the Lusaka Securities Exchange stock market performance.
Highlights
In the early 2000’s the world witnessed a remarkable increase in the world oil and metal prices and the decline in the value of the US dollar (Rezitis, 2015)
Lusaka Securities Exchange (LuSE) Price Index and Interest Rate A graphical analysis of the data on LuSE Price Index and Interest Rate gave the results shown in Figure 1 below
LuSE Price Index and Copper Price A graphical analysis of the data on LuSE Price Index and Copper price gave the results shown in Figure 2 below
Summary
In the early 2000’s the world witnessed a remarkable increase in the world oil and metal prices and the decline in the value of the US dollar (Rezitis, 2015). The commodity, usually acts as input to most of the production process and has the capacity to affect the outputs which in turn affect the performance of the stock markets. It has been observed that a stock market plays a pivotal role in economic growth through enhanced domestic savings and increased quantity and quality of investment (Nordin et al, 2014) and the development of the nation. In Sub-Sahara African Countries are characterised by being small and have a major scale of inefficiencies. The Lusaka stock Exchange (LuSE) is not an exception in terms of performance as compared to other stock markets in Sub-Sahara African Countries. The share price index of LuSE is declined in 2016 by an average of 26.83 in local currency as shown in Table 1 below (http://www.african-markets.com/)
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