Macro-Economic Factors Affecting Stock Market Performance in Zambia: A Case of the Lusaka Securities Exchange

Abstract

Capital markets across the globe channel funds from savers to firms, enabling them to finance various projects. Efficient capital markets facilitate capital raising by determining the prices at which security holders are willing to exchange claims on a firm’s future cash flows. Numerous studies have examined whether macro-economic factors influence stock market performance in both developed and developing markets. This study aimed to determine the influence of macro-economic factors on stock market performance in Zambia, specifically focusing on the Lusaka Stock Exchange. The independent variables included annual interest rates, exchange rates, money supply, GDP growth rate and the Index of Industrial Production, measured by the Central Statistical Office and the Bank of Zambia. The dependent variable was the all Lusaka Stock Exchange Annual Share Index. Secondary data was collected over a 20-year period from 1998 to 2017. The study employed a descriptive research design and used a multiple linear regression model for data analysis, conducted using SPSS version 23. The results produced an R-square value of 0.819, indicating that 81.9% of the variations in stock market indices are explained by the selected macro-economic factors, while 18.1% are due to other variables not included in the model. ANOVA results showed a significant F-statistic of 12.632 at the 5% level, confirming the model’s fitness. Individually, interest rates had a strong negative and statistically significant association with stock market performance. Conversely, money supply, exchange rates, and the Index of Industrial Production showed positive and statistically significant associations. GDP growth rates exhibited a positive but statistically insignificant association with stock market performance.