Determinants of stock market participation among individual investors in Tanzania

Abstract

Tanzania has introduced different policies to strengthen institutions’ investment performance and public participation in the stock market. With increased investment, it was expected to enhance capital financing of firms and individual attainment of positive returns through participation and growth in the stock market, which could accelerate individuals’ economic development. In Tanzania, individual participation in the stock market is low. This study, therefore, assessed the factors influencing individual investors’ participation in the Dar es Salaam Stock Exchange (DSE). Specifically, it examined individual investors’ awareness and its influence on participation in the DSE using self-awareness theory. Then, it determined the influence of socioeconomic factors on individual investors’ participation based on the socioeconomic theory. The study further established a link between individual investors’ risk behaviour and share trading frequency using prospect and behavioural finance theories. Finally, the study analysed the impact of the market indicators’ trends on the capitalisation of DSE, based on the Dow theory and the Box-Jenkins model. A cross-section research design with a mixed methods research approach was used in the study. Convenience sampling was used to select 200 non-participants, while exponential non-discriminative snowball sampling was applied to select 200 stock market participants, and purposive sampling was used to select six (6) key informants considered experts in the stock market. Quantitative data were analysed using descriptive statistics (cross-tabulation, means, medians, and standard deviations). Chi-square tests, binary logistic regression (BLR), and multinomial logistic regression (MLR) were used for inferential analysis. On the other hand, BoxJenkins’ autoregressive moving average (ARMA) and autoregressive moving averages with exogenous variables (ARMAX) analysed the time series data. Qualitative data were analysed using thematic analysis and were meant to support quantitative data. The findings revealed that individual participation in DSE was significantly influenced by awareness of DSE, access to media, and training. Socioeconomic factors, including social interaction, family participation, access to internet technologies, income and investment preference, influenced individual investors’ participation in the DSE. While the individuals’ investment amounts, experience, and xiv share prices significantly influenced share trading frequency, the individuals’ risk perception had no influence. Additionally, stock market indicators; individual participation, share turnover, DSE All Share Index (DSEI), and increased share turnover; significantly influenced domestic market capitalisation, while share volume was found to have no influence on domestic market capitalisation. It is thus concluded that individual investors’ participation rate can be enhanced by increased awareness via channels such as physical/virtual training, leveraging technologies, and social media. An increase in sales/share turnover leads to increased domestic market capitalisation. Thus, the study recommends that DSE, Capital Markets and Securities Authority (CMSA) raise awareness to the public and ensure compliance with guidelines related to disclosing firms’ information to shareholders to reduce information asymmetry risk. Also, they should encourage individual investors to acquire a larger volume of shares to increase market turnover. The study is among the few studies that analysed individuals’ share trading behavior and the trend of individual participation. It included social groups, family participation and social interaction factors that have the potential to influence participation in the stock market, which literature has scantily addressed in Tanzania. To theories, the study adds that the inclusion of awareness creation seminars and access to internet technologies enhance the participation of individuals in the stock market.