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ABSTRACT
Review of the existing literature indicates that securities markets contribute to economic growth by mobilizing saving and channeling it to productive investment. Ethiopia, though having growing markets for primary issues of equity and debt securities, does not have a secondary market and as a result is not reaping the benefits. The purpose of this study is to assess the benefits and costs of operating secondary market for equity and debt securities in the light of extant literature. In order to achieve this objective, the literature available on securities markets has been critically studied and summarized. The result of the research shows that Ethiopia should pave the way for secondary markets development in the medium term as their benefits exceed costs. The study concludes that the policymakers must seriously consider the launching of secondary market in Ethiopia.
Keywords: Secondary Market, Benefits and Costs, Ethiopia, Extant Literature Review.
Introduction:
Financial Markets channel savings to those individuals and institutions that need more funds for spending than that are provided by their current incomes. The financial system consists of many players like financial institutions, financial markets, regulators, market participants and others having stake on it. Money and Capital Markets operating within the financial system make possible the exchange of current income for future income and the transformation of savings into investment which result in increased production, employment, income, and living standards. (Rose, 2001) The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008. (seekingalpha.com). The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy (BIS, 2008).
With the exception of South Africa, African stock markets are extremely small by world standards. Together, the fifteen markets apart from South Africa accounted for only 0.2 per cent of world stock market capitalization at the end of 2003, and 2.0 per cent of emerging market capitalization. In contrast, South Africa - which accounts for 80 per cent of African stock market capitalization - is quite large by world standards. With a capitalization of US $267 billion at the end of 2003, South Africa was then the fifth largest emerging market (after China, Taiwan, South Korea...