South African Economy Financial Markets Capital Market Efficiency Investment Behaviour Market Liquidity Corporate Disclosure Financial Regulation

This study investigates the impact of financial market frictions on stock market performance in South Africa over the period 1990 to 2024. Using annual time series data sourced from the South African Reserve Bank, Statistics South Africa, the Johannesburg Stock Exchange, and the World Bank, the study employs the Autoregressive Distributed Lag (ARDL) model to examine both short-run and long-run relationships between market capitalisation and key financial frictions: transaction costs, liquidity constraints, information asymmetry, and regulatory quality. The findings reveal that transaction costs have a statistically significant and positive effect on stock market performance in the short run, suggesting investor adjustment mechanisms, but no significant long-term effect. Li7quidity constraints negatively affect market performance in the short term but become insignificant over time, indicating temporary disruptions. Information asymmetry is found to significantly reduce market capitalisation in both timeframes, highlighting the importance of transparency and disclosure. Regulatory quality, however, shows no statistically significant impact, pointing to potential inefficiencies or limitations in the existing regulatory framework. The study concludes that financial frictions, particularly information asymmetry and liquidity constraints, remain critical barriers to optimal stock market performance in South Africa. It is recommended that policymakers streamline transaction cost structures, enhance market liquidity, strengthen disclosure and governance frameworks, and improve regulatory coherence to foster a more efficient and resilient capital market.