INVESTIGATING THE NEXUS BETWEEN SHARE PRICE MOVEMENT AND STOCK MARKET RETURNS: EVIDENCE FROM SUB-SAHARAN AFRICA

Abstract

Abstract This study investigates the nexus between share price movements and stock market performance using data from 54 Sub-Saharan African countries spanning 2000 to 2020. Employing the panel ARDL framework with Mean Group (MG), Pooled Mean Group (PMG), and Dynamic Fixed Effects (DFE) estimators, the study disentangles both the short-run and long-run dynamics between share price fluctuations and market returns. The PMG estimator emerged as the most appropriate model, effectively capturing the long-term homogeneity and short-term heterogeneity among African economies. Empirical findings reveal that share price movements significantly and positively influence stock market performance, implying that rising share prices boost investor confidence and market activity. Complementary GMM estimations reinforced these results, revealing persistence in market behavior and a strong dependence of current outcomes on past capitalization and turnover. However, exchange rate volatility and high interest rates exert negative effects on market capitalization, underscoring the vulnerability of African markets to macroeconomic instability. Conversely, financial deepening demonstrates a robust positive impact, reflecting the importance of liquidity and credit accessibility in enhancing market efficiency. Policy recommendations emphasize the need for macroeconomic stability, transparency, and digitalization of trading platforms to strengthen the All-Share Index, market capitalization, share turnover ratio, and value of shares traded. Governments should also foster financial inclusion, incentivize listings, and harmonize regional trading systems to attract investors and deepen capital markets. The findings validate classical financial theories and affirm that effective management of price volatility and financial system expansion are essential for achieving resilient and efficient stock markets in Sub-Saharan Africa.