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CAPITAL MARKETS: ROLES AND CHALLENGES
ABSTRACT
Globally, the evolution of capital markets in the last two decades has been dichotomous, in the sense that the markets have experienced integration as well as segmentation. The dichotomous evolution poses important challenges for the roles that these markets can play in emerging economies. This paper aims to examine the roles and challenges of capital markets, with special focus on Africa. The paper draws on economic theory to assess the potential role of capital markets, in terms of consumption, investment and economic growth; more specific roles with respect to corporate financing, asset pricing and corporate governance are highlighted. It is argued that the macroeconomic policy environment is critical in influencing the performance of capital markets and hence the extent to which the market may be able to play its role. The status quo of the markets is analysed in terms of stock market capitalisation, number of companies listed, liquidity, returns and volatility of the 20 capital markets in Africa. The main institutional challenges are considered in the light of market microstructure evidence on how the frontier capital markets in Africa are responding to revitalisation and reforms. The paper concludes by pointing out some unresolved issues, undiscovered territory and the future of capital markets in Africa.
Key Words: capital markets; Africa