Securities investment in emerging capital markets: analysis of factors affecting investors' participation in the Dar es Salaam stock exchange (DSE)

Tanzania has been undergoing many economic policy reforms, with objectives of improving and enhancing its economic development. Among these is the policy for reforms in the financial sector, which led to the establishment of the Dar es Salaam Stock Exchange (DSE) in 1999. The number of securities investors participating in the Stock Market is of great importance in determining the liquidity, market size and the operating efficiency of the Stock Exchange, which in turn affect its development. At its inception the DSE and Capital Market and Securities Authority (CMSA) were optimistic of having a good number of individual securities investors participating in the market. Up to the beginning of 2002, the Stock Market has only about 40,000 individual investors participating out of estimated population of 32 million Tanzanian. There are indeed many factors, which influence securities investors committing their resources to such investments. This study attempted to examine securities investment in Emerging Capital Markets. The study focused mainly on the factors, which affect the demand of individual investors to participate in the DSE. It was statistically found that the level of public awareness about Stock Market, the level of individual income and availability of stockbrokers' services significantly affect the individual investors' participation in securities investment. Other important factors found to affect individuals’ investors' participation included the thinness of the Stock Market, poor performance of the first company (TOL) to be listed, the country's past social, economic and political background and the newness of the Stock Market in Tanzania. Finally, the study recommends an automation of the DSE trading system, continuous marketing effort and public education campaigns by CMSA and DSE. It is also further suggested that future research be conducted on the impact of the current level of individual participation on the operating efficiency and its price discovery process in the market.