The Determinants of the Harare Stock Exchange (HSE) Market Capitalisation

This is an exploratory study that attempts to identify and provide empirical evidence on the possible determinants of the market capitalisation of the Harare Stock Exchange (HSE) with the view of understanding the development prospects of the HSE and other similar markets. The study used 1976-1996 quarterly data from the International Finance Corporation (IFC) and Microfit was used to analyse the data. Using the assumption that market size is positively correlated with the ability to mobilise capital and diversify risk, the study findings suggest that share price and the exchange rate are the most important determinants of the HSE market capitalisation. The study suggests that further in-depth research into the determinants of market capitalisation for the African and other emerging stock markets is required to identify best ways of developing these markets within the global financial system while at the same time promoting local economic growth. The paper begins with an introduction about the HSE followed by short description of stock markets in developing countries. The second part of the paper outlines the theory behind market capitalisation, the development of of the general econometric model and specific cointegrating regression model and the results from the analysis. The third section provides conclusions and policy implications associated with encouraging the stock markets in the emerging stock markets with particular reference to the HSE.