MAKERERE UNIVERSITY

AWARENESS, TRUST AND STOCK MARKET EFFICIENCY:

THE CASE OF UGANDA SECURITIES MARKET

BY
LINTARI, JOHN MURUNGI
2006/HD10/1239K

A DISSERTATION SUBMITTED TO THE SCHOOL OF GRADUATE STUDIES IN

PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
DEGREE OF THE MASTERS OF SCIENCE IN ACCOUNTING AND FINANCE OF
MAKERERE UNIVERSITY.

AUGUST 2011

DECLARATION
I John Murungi Lintari hereby do declare that, this dissertation is my original work and
has never been submitted or published for any award in any other University.

Signed

................................................ Date

.............................................

John Murungi Lintari

2006/HD10/1239K

APPROVAL
This dissertation has been submitted for examination purposes with our approval as
University supervisors.

Signed

...............................................

Date

Date

Dr. Isaac Nkote

Supervisor

Signed

...............................................
Elvis Khisa
Supervisor

ii

DEDICATION
To my family, Maxine, Betty and Mum Sarah.

iii

ACKNOWLEDGEMENT
This research has been a result of many efforts, whose contribution is greatly
acknowledged. I owe profound gratitude to my supervisors, Dr. Isaac Nkote and Mr.
Elvis Khisa for the many hours they devoted going through the entire manuscript with
keen interest and pointing out numerous ambiguities from the proposal stage to the final
production of this report.
Without their dedication, this study would not have been possible. I also wish to extend
my heartfelt gratitude to all academic and non-academic members of staff of Makerere
University Business School, who in one way or the other helped me, realize my dream
while at the University.
I further wish to most sincerely thank the staff of Uganda Securities Exchange, Capital
Market Authority resource centre for giving me access to the data I was most preciously
looking for. Thanks also goes to Sanlam Life Insurance Uganda Limited, for the financial
or otherwise support in any way towards the reality of this work.
Lastly, I thank my family- Betty and Maxine for their encouragement during the difficult
time.
Above all, Praise be to the Most high for He is God the forever living. For in HIM all
things are possible.

iv

TABLE OF CONTENTS
DECLARATION i
APPROVAL. ii
DEDICATION. iii
ACKNOWLEDGEMENT.. iv
ABSTRACT.. v
LIST OF ACRONYMS USED vi
CHAPTER ONE .....................................................................................................................1
INTRODUCTION ..................................................................................................................1
1.1 Background to the Study ........................................................................................ 1
1.2 Statement of the Problem ....................................................................................... 3
1.3 Purpose of the Study .............................................................................................. 4
1.4 Objectives of the Study .......................................................................................... 4
1.5 Research Questions................................................................................................ 4
1.6 Scope of the Study ................................................................................................. 4
1.7 Significance of the Study ....................................................................................... 5
1.8 Conceptual Framework .......................................................................................... 6
CHAPTER TWO....................................................................................................................7
LITERATURE REVIEW .....................................................................................................7
2.0 Introduction ........................................................................................................... 7
2.1 Awareness of Stock Market ................................................................................... 7
2.1.1 Social Learning ................................................................................................... 9
2.1.2 Financial Literacy ............................................................................................... 9
2.2 Trust and Stock Market ........................................................................................ 10
2.3 Stock market efficiency ....................................................................................... 12
2.4 Relationship between Awareness, Trust and Stock Market Efficiency.................. 13
2.4.1 Awareness and Stock Market Efficiency ........................................................... 13
2.4.3 The Relationship between Trust and Investment ............................................... 15
2.4.4. Awareness, Trust and Stock Market Efficiency ................................................ 16
2.5 Conclusion........................................................................................................... 18
CHAPTER THREE ............................................................................................................ 20
METHODOLOGY .............................................................................................................. 20
3.1 Introduction ......................................................................................................... 20

3.2 Research Design .................................................................................................. 20

3.3 Population of the Study........................................................................................ 20
3.4 Sampling Design and Size ................................................................................... 20
3.5 Data sources ........................................................................................................ 21
3.6 Data Collection instruments ................................................................................. 21
3.7 Scale of instruments ............................................................................................. 21
3.8 Validity and Reliability of Research Instruments ................................................. 21
3.9 Measurement of Variables ................................................................................... 22
3.10 Data Processing and Analysis ............................................................................ 23
3.11 Anticipated Limitations of the Study .................................................................. 23
CHAPTER FOUR ............................................................................................................... 24
DATA PRESENTATION AND INTERPRETATION ................................................. 24
4.1 Introduction ..................................................................................................... 24
4.2 Descriptive Statistics............................................................................................ 24
4.3 Findings relating to Objectives of the Study......................................................... 26
4.3.2 Relationship between investor Awareness and Stock Market Efficiency in
Uganda. ..................................................................................................................... 26
4.3.3 Relationship between Trust and Stock Market Efficiency in Uganda. ................ 27
4.3.3 Relationship between Awareness, Trust and Stock market Efficiency in Uganda
.................................................................................................................................. 27
4.4 Regression Analysis............................................................................................. 27
4.5 Other Findings: (ANOVA TEST) ....................................................................... 28
Table 4.3: Years of Participation Vs Awareness, Trust and stock Market efficiency .. 28
Table 4.4: Sex by Variables: ...................................................................................... 29
DISCUSSION, CONCLUSION AND RECOMMENDATIONS ................................. 30
5.1 Introduction ..................................................................................................... 30
5.2 Discussions .......................................................................................................... 30
5.2.1 Relationship between investor awareness and stock market Efficiency in Uganda.
.................................................................................................................................. 30
5.2.2 Relationship between Trust and Stock Market Efficiency in Uganda. ................ 31
5.2.3 Relationship between Awareness, Trust and Stock Market Efficiency in Uganda
.................................................................................................................................. 32
5.3 Conclusions ......................................................................................................... 33
5.4 Recommendations ............................................................................................... 34
5.5 Areas for Further Research .................................................................................. 34
REFERENCES .................................................................................................................... 35
Appendix I: Questionnaire on Stock Market Efficiency ............................................. 37
(TO BE FILLED BY SENIOR MANAGEMENT) .................................................... 37
Appendix II - List of Stock Brokers in Uganda .......................................................... 43
Appendix III -List of Listed Companies in Uganda .................................................... 43

ABSTRACT
The study was motivated by the challenges of awareness and trust on the Uganda
Securities Exchange. It sought to examine the extent to which stock market efficiency
depends on the awareness and trust of investors. The study was guided by three major
objectives; to examine the relationship between awareness and trust; to establish the
relationship and impact of awareness and trust on stock market efficiency. The study
adopted a cross sectional survey design which was correlational in nature. It used both
primary and secondary data sources and later analyzed using the statistical package for
social sciences to generate descriptive and inferential statistics.
The findings revealed a strong positive correlation between awareness and trust among
the investing public. The study also revealed a strong positive correlation between trust
and stock market efficiency. Both awareness and trust had an impact on stock market
efficiency but from the simultaneous multiple regression model the findings revealed that
trust was a more important predictor of stock exchange performance..
The study recommends the stepping of awareness campaigns and restructuring of the
curricular to have stock market studies at A-level and to make incomes on stock trading
tax free. Others are the government should make it policy to divest through the stock
exchange instead of looking for a strategic partner. The locals should be targeted first
before any foreign investors are brought on board when it comes to selling local company
shares. USE should also encourage more cross boarder listing.

LIST OF ACRONYMS USED

BOU -

Bank of Uganda

CMA -

Capital Market Authority

CVI

Content Validity Index

Dr.

Philosophy of Doctorate

GDP

Gross Domestic Product

GSZ

Guiso, Sapienza and Zingales

IPO

Initial Public Offer

MOF -

Ministry of Education

MUBS -

Makerere University Business School

NSE

Nairobi Stock Exchange

SPSS -

Statistical Package for Social Sciences

USE

Uganda Securities Exchange

vi

CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Stock markets play a major role in the development of national economies (Bohnstedt,
2000). Over the past decade, investors have suffered a crisis of trust and awareness. Stock
market corrections have shaken investor confidence in capital markets and the level of
awareness has remained low. The failure of major investment institutions worldwide to
uphold investor confidence in the liquidity, stability and value of their investments, and
to create awareness, has initiated a wholesale review of the core assumptions that investor
hold about the validity of customary business and economic practices. Previously sacred
norms and widely accepted truths are openly being challenged.
Trust is more than governance, risk and compliance; common management practices that
serve as proxy for trust are also inadequate and integrity, Trust is the subjective
probability that individuals attribute to the possibility of being cheated (Luigi, and Paola,
2005). The decision to participate in the stock exchange also requires the knowledge and
awareness of the available financial instruments, an assessment of the risk-return tradeoff and an act of trust, and that the overall system is fairness of the system (Guiso &
Jappelli, 2004). Many prospective investors shy away from the stock market because they
have limited knowledge of stocks, the working of the stock market, and asset pricing
(Rooij, Lusardi and Alessie, 2007). Awareness in this study means having prior
knowledge of the stock, and is regarded as the knowledge about stock market activity that

is improved through regular and intensive stock market education (Amol and Komlo,
2007).
Guiso and Jappelli (2005), provide evidence that lack of awareness affect stock market
participation. The determinants of awareness, and they reveal the probability that survey
respondents are aware of stocks, mutual funds and investment accounts is positively
correlated with education, household resources, long-term bank relations and proxies for
social interaction, and concluded that lack of financial awareness has important
implications for understanding the stockholding puzzle and for estimating stock market
participation costs.
Trust and awareness might be positively correlated but affect stock market participation
via two different channels. Awareness serves to reduce barrier of knowledge of the
available assets. Mistrust tends to lower the expected return from an investment given
that individuals need to take into account the possibility that a contract will not be
respected by the counterpart.
The efficiency of stock market efficiency is indicated by market capitalization, market
turnover and market liquidity (Yartey and Adjasi, 2007). Recently, Guiso, Sapienza &
Zingales (2008) examined the effects of trust on stock market participation. Their survey
data used information on an individual-specific measure of perceived trust to assess its
impact on stockholding. They also associate differences in stock market participation
across countries with variation in aggregate levels of trust by regressing the share of
stockholders in each country on the average levels of trust and few other country-wide
indicators.

According to a study by CMA, over 65% of the respondents were not familiar with stock
market, and 37% of the respondents felt that CMA and other stakeholders in the industry
need to improve the general public awareness about the operation and benefit of the
capital markets (CMA Publications, 2008). The size of the Uganda Stock Market
approximates US Dollars 2.7 million against Kenya with as market size of US Dollars 13,
3333 million. During the last 10 years, the average market capitalization increased by
21.03%. Performance of capital and stock market remains low as evidenced in the above
stock market performance.
At the same time the stock market registered a 77.36% and 22.56% growth in the share
turnover and total number of shares traded, respectively. The average market
capitalization increased by 21.03% (Growth in Market Activity at the USE (FY2006/07FY2007/08).
1.2 Statement of the Problem
Although Uganda Securities Exchange (USE) since its establishment has undertaken
awareness measures as part of the reforms, trust remained a big challenge to the
efficiency of stock market. Awareness of information on investing opportunities and trust
of the stock are important for economic transactions. Lack of the Awareness and Trust if
not checked may result to declining numbers of listed companies per year, decreased
market capitalization (measured as a percentage of GDP), reduced stock traded and
turnover percent, which will hamper effective stock market participation. This research
seeks to address this gap.

1.3 Purpose of the Study

The purpose of the study was to investigate how awareness and trust impact on stock
exchange market Efficiency in Uganda.
1.4 Objectives of the Study
i).

To examine the relationship between investor awareness and stock market

efficiency in Uganda.

ii).

To establish the extent to which trust among the investing public affects stock
market efficiency in Uganda.

iii).

To examine the relationship between awareness, trust and stock market efficiency
in Uganda

1.5 Research Questions

i).

What is the relationship between awareness and stock market efficiency in

Uganda?

ii).

To what extent does trust affect stock market efficiency in Uganda?

iii).

What is the relationship between awareness, trust and stock market efficiency in
Uganda?

1.6 Scope of the Study

Subject Scope

The study sought to investigate awareness, trust and Stock market efficiency

Geographical Scope

The study was carried out in Kampala city

1.7 Significance of the Study
i).

The findings of the study will bridge the information gap to the investing public

ii).

The findings of the study will strengthen trust of the shareholders and business
owners in the Ugandas Stock Exchange

iii).

The findings of the study will bring to light the challenges facing effective
participation in the stock market, which once addressed, will be of great
importance to BOU, USE and CMA.

1.8 Conceptual Framework

The conceptual framework for this study has been summarized in the figure below relates the
independent variables to the dependent variables as illustrate below:

Awareness
Financial Literacy
Social Learning
Stock Market Efficiency
Market Capitalization
Market Turnover
Market Liquidity
Trust
Interpersonal trust
Institutional trust

Source: Developed from review of extant literature (Guiso, 2005), Guiso and Jappelli (2005),
Hong, Kubik and Stein (2004) and Brown, Ivkovic, Smith and Weisbenner (2006.
Description of the Model
A model based on trust seems to capture in a simpler and more realistic way the reluctance some
people show toward investing in the stock market. A trust-based explanation provides a new way
to interpret the growing evidence that familiarity breeds stock market investments. Empirically,
there is evidence that investors have a bias to invest in stocks of companies they are more
familiar with (Huberman, 2001).

Therefore the above model shows that the Market

Capitalization, Market Turnover and Liquidity will be enhanced given that there financial
literacy, social learning and trust among the investing public.

CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter deals with review of existing literature in relation to trust, awareness and stock
market efficiency
2.1 Awareness of Stock Market
The extent to which consumers are aware of available financial assets dependents on the
incentives of asset suppliers to spread the information about the instruments they issue (Guiso,
Jappelli, 2002). (Merton (1977) pointed out that awareness affects asset prices because those that
are less widely known, and thus less commonly selected, pay a premium. Besides Mertons
paper, (Guiso, Jappelli, 2003) related three further strands of the literature: Financial
information, social learning and advertisement. On the determinants of awareness, (Guiso,
Jappelli, 2005) presented a simple model where investors can learn about assets from distributors
or through social interaction. They further held that the probability of becoming aware depends
on distributors incentives to inform investors and that people buy assets when they are aware of
it. Different from Hong, Kubik and Stein (2004) who inferred the role of social learning from
stock the stock market participation decision. (Guiso, Jappelli, 2003) offered a direct test on the
effect of social learning on awareness by providing insights into the mechanism by which social
learning affects stockholding. Guiso and Jappelli (2003) further observed that besides learning
from signals and contacts with issuers and distributors, individuals often lean about investment
opportunities from peers who have been inform by financial intermediaries. Therefore social
learning changes distributor incentives and hence the optimal signal policy.

Grossman and Stiglitz (1980) and Verrecchia (1980) in their examination of how information on
asset returns effect portfolio choice established that differences among investors are endogenous,
and financial information reduces subjective uncertainty on returns. Rooij and Lusardi (2007) in
their paper show that lack of understanding of economic and financial information is a
significant deterrent to stock ownership and that lack of literacy prevents households from
participating in the stock market. Awareness of the existence of stock (financial asset) is
exogenous to the investors choice set. Issuers and distributors of financial assets have strong
incentives to inform the pool of potential investors; broadening the investor base lowers the cost
of raising external capital for issuers and increases revenue for distributors and this can be done
by mailing, advertising in the financial press or with direct contact to potential investors. (Guiso
and Jappelli, 2005) used data to construct summary indicators of financial awareness, where one
of the measures of financial awareness is the number of assets that each individual knows
divided by the number of potential assets. The second measure is an index that gives less weight
to popular assets (such as checking accounts) than other assets that are less widely known (such
as corporate bonds and mutual funds and they weighted the index by the inverse of the
proportion of people aware of the assets and scaled it by the sum of the weights. Issuers will
target the individual (groups) that have a greater probability of investing in the stock market.
Secondly, individuals are more likely to be aware where the cost of sending signals is lower, for
instance in areas where the cost of contacting investors is relatively low. Thirdly, awareness
should be higher in areas where one can learn from peers as well as from the general media and
from intermediaries.

2.1.1 Social Learning

Social learning occurs when potential investors interact sequentially with another investor, and
as such, if one is aware then the other one becomes aware Guiso and Jappelli (2003). Guiso and
Jappelli (2003) further held that social learning amplifies the effectiveness of a given signal
which has a better chance of reaching a potential investor. Guiso and Jappelli (2005) found out
that individuals often learn about investment opportunities from peers who are ready informed.
Hong et al. (2004) found that social households are more likely to invest in the stock market.
Ivkovich and Weisbenner (2004) found out that ten percent increase in neighbors purchase is
associated with a two percent increase in the households purchase of that stock. Watt (1999)
found out that social learning takes place in a ring lattice network. It is also found that when
agents engage in social learning an information cascade results.
2.1.2 Financial Literacy
Guiso and Jappelli, (2005) used data to construct summary indicators of financial awareness,
where one of the measures of financial awareness is the number of assets that each individual
knows divided by the number of potential assets. The second measure is an index that gives less
weight to popular assets (such as checking accounts) than other assets that are less widely known
(such as corporate bonds and mutual funds and they weighted the index by the inverse of the
proportion of people aware of the assets and scaled it by the sum of the weights. Issuers will
target the individual (groups) that have a greater probability of investing in the stock market.
Secondly, individuals are more likely to be aware where the cost of sending signals is lower, for
instance in areas where the cost of contacting investors is relatively low. Thirdly, awareness
should be higher in areas where one can learn from peers as well as from the general media and
from intermediaries.

2.2 Trust and Stock Market

It is widely acknowledged that trust plays a central role in the way in which financial services
organization present themselves to customers (Ennew, 2008), and this is particularly apparent in
stock markets. Research by Paola Sapienza and Luigi Zingales (2005) suggests that true insights
into the root causes of a nations financial strengths or weakness lies in trust. They noted that
Trust increases the probability of direct participation in the stock market. Trust captures investor
optimism in that optimistic investors may be induced to participate in the stock market by their
inflated expectation of returns. Trust explains why even the rich may choose to keep themselves
out the stock market even if they can afford to pay the participation cost. Trust is defined as the
subjective belief about the likelihood that a potential trading partner will act honestly. People
distinguish between two different types of trust; the generalized and personalized trust. The
former is about the preconceptions people of one group have for people from another group
while the later concerns the evolving relationship between two specific agents
In a business sense, much of the discussions about the meaning of trust have its origins in
literature relating to organizations and organizational analysis (Christine & Ennew, 2008). There
are a variety of approaches to understanding the concept of trust and a variety of definitions
(Sheppard & Sherman, 1998). What is apparent from the many different definitions and
approaches to trust is that there are certain key themes that emerge and appear to be recognized
as integral to the concept of trust (Sheppard and Sherman, 1998). Trust depends on the existence
of risk : if the outcomes of a particular actions are certain, then there would be no need of trust.
Trust also depends on interdependence between actors : if actors are not somehow dependent on
each other, there is no need to trust; Trust is associated with vulnerability : risk and
interdependence creates vulnerability. Trust involves confident expectations about future

10

behaviors: an actor will only accept vulnerability in the presence of strong expectations of the
positive future behavior of another actor. Some form of trust is likely to be inherent in most
relationships: few relationships are or can be characterized by complete certainty of complete
contracting.
Thus, it is apparent that a common view of trust would suggest that it is concerned with an
individuals willingness to accept vulnerability on the grounds of positive expectations about the
intentions or behavior of another in a situation characterized by interdependence and risk.
Existing perspectives of trust suggests that this willingness to be vulnerable may arise from a
calculation of cost and benefits, an individuals existing predisposition to trust, a detailed
knowledge and understanding of stock exchange and faith in related institutions.
As long as there is vulnerability, risk and interdependence associated with investing in the stock
market, then there will be a role for trust. From the perspective of an investor, investment in the
stock market can be complicated because of the variety and complexity of the investments
available and the difficulty of making comparisons. Despite the recent developments of the stock
market in Uganda, there is, nevertheless, a considerable variety of investment products.
In addition, stock market in Uganda is generally considered unappealing to large sections of
private limited companies and accordingly many are unwilling to invest in stock markets (
participate in IPOs). The difficulty associated with investing in the stock market are
compounded by the inability to judge how well the investment will perform in the future,
investors can only assess the outcome once
The term trust and confidence are often used as synonyms though there are distinct
differences. Confidence is the overriding objective for investors, and investors can attain

11

sufficient level of confidence in an investment by either trusting the issuers management to

optimize performance or by controlling management actions (Todd, 2007).
2.3 Stock market efficiency
Market capitalization is perhaps the most important criterion in assessing the size of a capital
market. Market capitalization equals to value of listed shares divided by nominal GDP. The ratio
has been widely adopted in the literature as a stable measure of stock market Efficiency for
various reasons, first; it is a proxy of the size of the stock market which is positively correlated
with the ability to mobilize capital and diversify risk. Secondly, it is presumed to include firms
past retained profits and future growth prospects so that a higher ratio to GDP signifies growth
prospects and stock market development (Levine and Zervos, 1998; Hargis, 1998, Moel, 2001,
Bekaert et al, 2001; Rajan and Zingale, 2003; and Karolyi, 2004). The key weakness of this ratio
is that a high ratio solely driven by appreciated value of few firms with little or no change in the
amount of funds raised, and no change in the breadth of the stock market may be interpreted as
stock market Efficiency. Growth in market capitalization as a share of GDP is associated with
an increase in the number of listed firms (Adelegan, 2008). Monthly data on market
capitalization were obtained from USE.
The number of listed firms has been used in the literature as a measure of stock market efficiency
because it is a proxy of the breadth of the stock market which is not subject to stock market
valuation (Moel, 2001, Bekaert et al, 2001; Rajan and Zingale, 2003; and Karolyi, 2004). This
study defines this measure as the number of listed firms scaled by GDP and is used to measure
the breadth of the stock market. The measure is adopted in this study because it is a count of
listed of listed firms which reflects the breadth of the market that is not affected by movements
in stock prices
12

Turnover ratio is measured as the value of total shares traded divided by market capitalization. It
has been used in the literature also to measure stock market liquidity and development ( Hargis,
1998; Moel, 2001; Bekaert, 2001). High turnover is expected to indicate lower transaction costs
2.4 Relationship between Awareness, Trust and Stock Market Efficiency
2.4.1 Awareness and Stock Market Efficiency
Evidence in Guiso, Haliassos and Jappelli (2003) documents a positive correlation between
awareness and stock market participation. They held that the extent to which consumers are
aware of available financial assets depends on the incentives of assets suppliers to spread
information about the instruments they use. They further found out that the amount of
information disseminated and the probability of individuals becoming aware of financial assets
are correlated with the probability that, once informed they will invest in the assets and
negatively affected by the cost of spreading the information. Awareness is not a choice variable
but is exogenous with respect to individual choice, Guiso, Haliassos and Jappelli (2003).
Hong, Kubik and Stein (2004) presented a model in which stock market efficiency is influenced
by social interaction. In their model, they established that any given social investor finds the
market more attractive when more of his peers participate. In their context also, social interaction
can serve as mechanism for information exchange via word of mouth or observational learning
Banerjee (1992), Ellison and Fudenberg (1993, 1995).
Brown, Ivkovic, Smith and Weisbenner (2006) held that many individuals finds easier to learn
how to open a mutual fund or brokerage account by talking to friends than through other
mechanisms, thus lowering the psychological fixed cost of investing. They also added that
individuals enjoy discussing stock market investment with their friends and colleagues and thus
13

may be more apt to participate in stock market if there is a high participation rate among their
friends and colleagues. They may also be keeping up with the Joneses effect; according to
Bernheims (1994) model of conformity, individuals may wish to maintain the same
consumption that their social group does, suggesting that participation in the stock market by
their social group may have a positive influence on their own decision to do so. This effect could
also be generated by external habit formation models (Campbell and Cochrane (1999))or the
scarcity of local resources that lead investors to care about their relative wealth in community
(DeMarzo, Kanniel, and Kremer(2004)) and thus there are several reasons to suspect that such a
causal relation might exist, each of which relies on some form of word of mouth interaction.
There are two channels through which social interaction might influence stock market
participation. The first is word of mouth or observational learning Banerjee (1992), Bikchandani,
Hirshleifer, and Welch (1992), Ellison and Fudenberg (1993, 1995). Hong, Kubik and Stein
(2004) held that potential investors may learn from one another either about the high returns that
the market has historically offered, or about how to execute trades. Secondly, Becker (1991) held
that stock market efficiency may get pleasure from talking about the ups and downs of the
market with friends who are also fellow participants, much as he might enjoy similar
conversations about restaurants, books, movies or local sports teams in which there is a shared
interests.
2.4.2 Trust and Stock Market Efficiency
When the average level of trust is low, for any given level of return, investors are more reluctant
to invest and to attract them; price-earnings ratios should fall and if they do, entrepreneurs are
less interested in floating their companies or even in selling pieces of them to private investors
(Giannetti and Koskinen, 2005). In places where trust is scarce, corporations are reluctant to
14

broaden their shareholder base. An investor needs some trust even when he buys a stock
indirectly, through a mutual fund, a broker, or a bank. While the presence of an intermediary
reduces the need for information (and thus for trust), it also increases exposure to opportunistic
behavior of the intermediary (Curcuru et al, 2004). According to the probit model in the capital
market analysis (Myres 2001), not only does trust increase the likelihood an individual invests in
stock, but it also increases the share of wealth invested in stocks, conditional on investing in
them. They tested this prediction when the dependent variable is the portfolio share invested in
stock (computed as the value of stocks held directly divided by the value of financial assets). As
in the participation estimates, the effect of risk is poorly measured, while trust has always a
positive and statistically significant effect. Individuals who trust have a share in stocks 3.4
percentage points higher, or about 15.5% of the sample mean. Ambiguity aversion has a negative
effect on the share in stocks, while optimism has a positive effect, but neither coefficient is
statistically significantly. Adding these controls leaves the effect of trust unchanged. Estimated
effects and conclusions are similar if instead of the share directly invested in stocks we look at
the share invested in all risky assets.
2.4.3 The Relationship between Trust and Investment
There have been some interesting pieces of analysis which shows the impact of trust on
investment, which has been upheld by many as quite considerable. For instance a study by
Bottazzi, Dan Rin and Hellmann (1998) looks at the venture capital markets in which trust is
particularly important. They examined the impact of generalized views on trust between nations
in Europe on the amount of venture s investments across borders, between countries. There Eurobarometer survey showed which countries trust which other and European trust Scandinavian
and Dutch more than they trust Southern Europeans. Overall, there is a strong and positive effect

15

of trust on investment. And it also affects the nature of contacts, with more flexible contracts,
which seem to be generally beneficial, put in place when trust is highest. A study on Trust in
Financial Markets by Colin Meyer notes that equity market loomed in early parts of the last
century on the basis of the informal relationships of trust, rather than as statute. He notes that it
is easier to legislate for investor protection than it is to achieve effective enforcement of investor
protection and still harder to promote the conditions for relations of trust.
2.4.4. Awareness, Trust and Stock Market Efficiency
Awareness and Trust are recurrent concepts in the social capital literature, both in Sociology and
in Economics. Merton (1987) related portfolio incompleteness and heterogeneity to lack of
information on investment opportunities, calling attention to the indisputable fact that investors
purchase only securities they know about. Merton showed that even in the absence of monetary
transaction costs, portfolio choice spends on the particular menu of asst known to each investor.
Merton (1977) pointed out that awareness affects asset prices because those that are less widely
known, and thus commonly selected, pay a premium. JG pointed out that this makes it
worthwhile for firms to invest resources in spreading information about their own stock,
suggesting one possible avenue through which investors gain awareness.
We now turn to the economic rationale behind the association of trust and awareness with stock
market participation. As pointed out earlier, awareness of the existence of stocks is exogenous to
the investors choice set. Like Merton (1987), issuers and distributors of financial assets have
strong incentives to inform the pool of potential investors. In a nutshell, ceteris paribus
awareness induces participation because the probability of becoming informed is an increasing
function of the probability of buying stock. On the other hand, mistrust reduces the expected
utility of an investment in stocks, given that individuals have to discount the expected return in

16

order to take into account the possibility that a contract would not be respected by the
counterpart. Thus, mistrust relates to non market risk. As GSZ point out, contract enforceability
and information asymmetries both contribute to participation costs and thus they are interrelated.
For example, if mistrust is deeply rooted in a society, individuals will tend to disregard any
information as unreliable; on the other hand, a better informed individual needs to rely less on
trust on others in order to take decisions regarding her investments.
Guiso, Sapienza and Zingales (2004) state that financial agreements require the investor to trust
the issuer, or alternatively an adequate level of transparency: the buyer must believe that the
asset issuer i.e. the financial institution or the Government, will be able to repay the agreed-upon
yield in the future; she must also be sure that the contract that she is writing is enforceable and
covers all the relevant contingencies; moreover she should believe that in case of a litigation the
attorney fees are bearable and the judicial process is fair and fast; last but not least, a potential
investor must be confident that the issuer is not hiding any relevant information about the
fundamentals driving the asset price. Those conditions can be guaranteed by an appropriate set of
securities laws: as emphasized by La Porta, Florencio and Shleifer (2006) cross country
differences in disclosure requirements, liability standards and sanctions enforceability are
powerful predictors of financial development. Knack and Keefer (1997) formalize this idea and
define trust in terms of beliefs in a game theoretic framework: Trust is the fraction of people in a
society who expect that most others will act cooperatively in a prisoners dilemma context,
Knack and Keefer (1997). Based on such a definition, they claim economic activities that rely on
future actions of others are accomplished at a lower cost in a high-trust society.
As regards the choice of a measure for trust, the significance of weak ties induces us to focus
on generalized trust, i.e. the perceived probability of not being cheated by banks, financial

17

intermediaries, companies and institutions in general, rather than to deal with specific trust, i.e.
trust on people one has close and repeated interactions . Following Knack and Keefer (1997) we
stress the contextual nature of trust, according to which trust is a feature of the community an
individual lives in. What matters in their definition is the fraction of people an individual expects
to behave cooperatively. The intuition is that a given individual may be trustworthy towards his
peers, but this feeling must be reciprocated by other members and institutions in order to be
fruitful. Thus, trust is determined by the aggregate perceptions of all the members, while single
individuals are trust-takers, meaning that no one can modify the overall level of trust perceived
in a community. We then measure the level of trust for individual i as the proportion of people in
the region of residence of i who report to trust the others: this is a common approach to
measuring generalized trust and it has been used by Guiso, Sapienza and Zingales (2004), Knack
and Keefer (1997) and by Rostila (2008) to assess the impact of trust on portfolio decisions,
economic growth and health respectively, just to mention three studies with economic
applications.
2.5 Conclusion
From opinions of the various Scholars reviewed literature it is evident that trust and awareness
must be taken into consideration while looking at development of stock exchanges in Uganda
given that the markets are information markets. If investors are aware of the various investments
on the stock exchange and they trust the market then this will influence their behavior in terms of
whether to invest or not. In fact, everyone above the wealth threshold will invest in stocks.
Secondly, if there are no entry costs, the people who do not invest in stock are simply those who
are not aware of the existence or do not trust the stock. Finally, given both unaware investors and

18

entry costs, a person who do not invest in stocks may be uninformed, may have low wealth or do
not trust the stock.
From the literature it is clear that Investor awareness and trust heavily impact on stock exchange
efficiency.

19

CHAPTER THREE
METHODOLOGY
3.1 Introduction
This section covers the methodological aspects of the study. It covers the research design, study
of population, sampling design, source of data, methods of data collection, measurement of
variables, data analysis and limitation to the study.
3.2 Research Design
This study used a cross sectional and correlational research design. The research used both
descriptive and analytical research design to establish whether a change in the independent
variables (awareness and trust) results into a change in the dependent variable (stock market
efficiency).
3.3 Population of the Study
The population comprised of key players in the stock market industry. These included 63
employees from seven brokers, 20 employees and board members of CMA and 29 employees
and board members from USE. The total population was 112
3.4 Sampling Design and Size
The sample size was determined using Krejecie and Morgan (1970), and was 80. The
respondents were selected using stratified sampling and simple random sampling. The population
of 102 is divided into three categories, CMA, USE and Brokers and consequently a sample of 80

20

was selected from the population through simple random sampling technique. The unit of
analysis was the three (3) organizations.
ORGANISATION
CMA
USE
BROKERS
TOTAL

POPULATION
20
29
63
112

SAMPLE
19
19
42
80

3.5 Data sources

The study mainly used primary data was collected using our semi structured questionnaire that
contained close and open ended questions.
3.6 Data Collection instruments
A self administered questionnaire was used to collect data from the listed companies listed

companies on the Uganda Securities Exchange and market intermediaries

3.7 Scale of instruments

We used the five point likert scale, where 5 means strongly agree; 4 means agree; 3 means not
sure; 2 disagree and 1 means strongly Disagree.
3.8 Validity and Reliability of Research Instruments
Validity refers to the extent to which the measurement technique or instrument actually measures
the attributes that were intended in the research. The researcher will construct instruments
(questionnaires and interview guides) that will be used to solicit data from the sample of
respondents. The instruments will be given to the two selected lecturers from the business school
to ascertain their validity and find out whether they seek for information that would answer the

21

objectives in the study. Content validity index (CVI) will then be used to establish validity of the
instruments.
Reliability refers to the level of dependability of the questions in the research instrument. To
ensure this, the instruments was first pre-tested in area of study and reliability tested using the
Cronbach alpha coefficient, a, (Cronbach, 1946).

Variables
Awareness
Trust
Stock Market Efficiency

Cronbach Alpha
0.732
0.631
0.640

3.9 Measurement of Variables

The study variables were measured in the following ways:
Awareness: Constructs on stock exchange awareness were constructed to probe the respondents
on level of knowledge, available instruments, knowledge of current economic trends like
inflation and interest rates. This instrument was designed by Luigi, & Tullio, (1998)
Trust: Individual or interpersonal trust was measured by an instrument already designed by
Hoffman et al., (1999). Institutional trust was measured by an instrument designed by Personal
author, compiler, or editor name(s); click on any author to run a new search on that name.Dunlop
et al, (2000).
Stock Market Efficiency: This was measured by the market capitalization, turnover, liquidity as
designed by Guiso, (2005)

22

3.10 Data Processing and Analysis

All data gathered from the field study was processed and analyzed to attach meaning. Data
processing and analysis included procedures such as editing, coding and data entry into the
computer for analysis using Statistical Package for Social Scientists (SPSS). The chi square
statistics was then used to test the significance of the relationship between quantifiable variables.
Descriptive and inferential statistics was done.
3.11 Anticipated Limitations of the Study
Some respondents feared to disclose information to the researchers for they are not always aware
of the purpose of the information required. Some respondents did not provide the information
which was vital to the study. This was overcome by getting an introduction letter from MUBS
which assured the respondents that this was a typically academic research. Hence information
was availed with minimum fear.
There was insufficient time provided for an in-depth study. As a result of limited time, the
researcher was not able to get all the would-be respondents. However, this was solved by
prioritizing this research until it is accomplished compared to other tasks.
Non-response: some companies and individuals had no time to answer the questionnaires
especially if they thought it was time consuming. This was solved by designing questionnaires in
a manner that prompted fast response.

23

CHAPTER FOUR
DATA PRESENTATION AND INTERPRETATION
4.1

Introduction

The chapter deals with the findings of the study. A discussion of descriptive and inferential
statistics was done. The data was collected from selected institutions involved in stock market
development, using both questionnaire and interview methods. Questionnaires were distributed
to 19 respondents representing all 12 (twelve) listed companies, 8 stock brokers and 3
institutions (CMA, USE and BOU) involved in stock market Efficiency The findings are
summarized from primary and secondary sources, presented in tables, frequencies, mode, mean
correlation and percentage contributions. This chapter has two sections, where the first section
presents the demographic features of the sample used in the study whereas the second section
presents the findings and examination of the study variables.
4.2 Descriptive Statistics
The demographic features are presented using simple frequencies, showing respondents years of
participation and sex of respondents. Cross tabulations were used on the demographics like Sex
by years of participation on board and Membership on Stock exchange board by sex. They
strictly and simply give us an insight into the nature of our sample. But do not in any way answer
our research objectives.

4.2.1 Response Rate

Questionnaires distributed
Questionnaires collected
Response rate
Source: Primary data

123
98
79.6

24

4.2.2 Gender of Respondents

Gender of respondents
Male
Female
Total

Frequency Valid Percent

Cumulative Percent
33
33.6
33.6
65
66.3
100
98
99.9

Source: Primary Data

Majority of respondents were male (66.7%), indicating the need to bring more women on board
participate in the growing financial sector and more specifically the Stock Exchange Industry.

4.2.3

Years of Participation
Years of Participation
< 5 years
6-10 years
Above 10 years
Total

Frequency
30
55
13
98

Valid Percent
30.6
56.1
12.3

Cumulative Percent
30.6
86.7
100

A majority of the respondents (56.3%) stated that the institutions had operated for (6-10) years.
This reveals that though the financial sector is still in its infancy stage, there is reasonable growth
in the commercial stock exchange in Uganda due to government commitment.
Sex of respondents was considered as an important factor since gender balance is up-to-date.
Stock exchange Efficiency initiatives should optimally utilize the available capacity from both
sexes. The results are indicated below.

4.2.4 Membership on board

Membership on board
CMA
Brokers
USE
Others
Total

Frequency
18
22
32
27
98

Valid Percent
18.4
22.4
32.6
27.4

Cumulative Percent
18.4
40
72.6
100

Source: Primary Data

25

A majority of the respondents (32.6%) belonged to listed companies. Since stock market
Efficiency wants closer supervision for their revival they have more board members. Information
on period of participation on boards was collected and results are indicated below.
4.3 Findings relating to Objectives of the Study
4.3.1 Correlation Analysis
Correlation analysis is used to establish of the strength of the linear relationship between the two
random variables (Johnson and Bruce, 1989). Correlation ranges between -1 and +1, and is a
measure of co-movements (linear association) between two random variables (CFA Curriculum,
2009). Two random variables are positively correlated if high values of one are likely to be
associated with high values of the other. They are negatively correlated if high values of one are
likely to be associated with low values of the other.
Table 4.1:

Correlations

Awareness
Trust
Stock exchange
Efficiency

Awareness
1
.51**

Trust

.41**

.62**

Stock exchange Efficiency

1
1

Source: Primary Data

** Correlation is significant at 0.01 level.
* Correlation is significant at 0.05 level.
4.3.2 Relationship between investor Awareness and Stock Market Efficiency in Uganda.
There was a strong significant positive correlation between Awareness and Stock Market
efficiency. (r=0.41**, P-value<0.01). This implies that if awareness is improved then Stock
Market efficiency is likely to be boosted in Uganda.

26

4.3.3 Relationship between Trust and Stock Market Efficiency in Uganda.

There was a strong significant positive correlation between trust and Stock Market efficiency.
Awareness Trust (r=0.62**, P-value<0.01). This implies that if trust is improved then Stock
Market efficiency is likely to be boosted in Uganda.
4.3.3 Relationship between Awareness, Trust and Stock market Efficiency in Uganda
This was used to establish the strength of independent variables and the dependent variable,
which is Stock Market efficiency. It is specifically used to establish combined effect of the
independent variables on the dependent variable. This is revealed by the adjusted R-square
(Sekaran, 2004). The findings are given in table below.
Table 4.2: Simultaneous Multiple Regression Analysis

Independent variable
Dependent Variable
Stock Exchange
Efficiency

Beta
Constant
Awareness
Trust

Sig.

Rsquare
0.41

Adjusted Rsquare
0.39

df
F
Sig.
3 17.15 0

1.941
0.14
0.57

3.47
4.14

0.08
0.06

Source: Primary data

4.4 Regression Analysis
When the independent variables are jointly regressed against the dependent variable an adjusted
R2 as is commonly known is generated which indicates combined predictive strength by the
independent variables. In our case it is 39.0 %, (F-value 17.15, Sig. 0.00); we can say that 39 %
of the variance in the dependant variable has been significantly explained by the independent
variables. There is a less than 0.00 percent chance of this not holding true. The beta coefficient
indicates individual predictive strength. The higher the Beta Coefficient the bigger the causal

27

effect. So the greatest predictor of the variation in relation to the magnitude of the Beta coefficient is Trust (Beta =0.57, t=4.14).
4.5 Other Findings: (ANOVA TEST)
These were carried out to establish the difference in perception of the various breakdown
demographic variables on the independent and dependent variables. The basis of interpretation is
the predetermined levels of

significance or probability-values, which are equal, or below 0.05.

The corresponding magnitude of the T-values, F-ratios and the mean scores are then used to
assess which particular group has evaluated the institutional weaknesses in the construct more
positively or negatively. A t-test is mostly suitable for two groups while ANOVA test is mostly
suitable for more than two groups.
Table 4.3: Years of Participation Vs Awareness, Trust and stock Market efficiency

Awareness

Trust

Stock Market Efficiency

Years of
Participation
< 5 years
6-10 years
Above 10 years
Total
< 5 years
6-10 years
Above 10 years
Total
< 5 years
6-10 years
Above 10 years
Total

Mean Df

30
55
15
98
30
55
15
98
30
55
15
98

17.96
16.75
18.82
17.74
17.91
17.29
18.21
17.77
29.65
28.56
28.35
29.13

f
Sig
3.333 0.038

1.129 0.326

1.354 0.261

Source: Primary Data

Respondents of different years of participation differed significantly on their perception about
awareness, since P-value was less than 0.05 level of significance. In the majority of cases (above

28

11) years had the highest mean scores. This means they perceive more weaknesses in the in
relation to those to aspects Financial Literacy, Market Knowledge compared to the other groups.
This could be due to their vast experience so are more likely to point out gaps in the quality of
stock market Efficiency.
Table 4.4: Sex by Variables:
Sex
Awareness
Trust
Stock Market efficiency

Male
Female
Male
Female
Male
Female

N
33
65
33
65
33
65

T
1.98
1.17
1.01

Mean Sig
17.14
0.05
18.16
17.65 0.647
17.86
28.57 0.182
29.53

Source: Primary Data

Respondents of different sexes differed significantly on their perceptions about Awareness (T
= 3.38, Sig. 0.05) since the P-values was < 0.05 level of significance. Females had a higher mean
score.

29

CHAPTER FIVE
DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.1

Introduction

This chapter discusses the findings in chapter four in relation to the objectives of the study and
review of the related literature. It is sub divided into four sections. The first section is
introduction, second is discussions, third is conclusions and recommendations while the forth is
areas for further research
5.2 Discussions
5.2.1 Relationship between investor awareness and stock market Efficiency in Uganda.
There was a strong significant positive correlation between Awareness and Stock Market
efficiency. This implies that if awareness is improved then Stock Market efficiency is likely to
be boosted in Uganda. According to CMA, USE and BOU (who are involved in stock market
Efficiency), despite the restructuring and performance improvement of the Financial institutions,
stock exchange Efficiency is still weak.
Similarly, most participants had this to say, We have observed over a period of time that gaps
exist in stock exchange efficiency due to lack of awareness. But we work with what since as a
nation we are still building a lot of capacity after the many years of financial turmoil This was
heavily emphasized by BOU conducting that poor quality information about awareness and trust
contributed to the slackness and board members admit that at times reports give untrue
information
Rooij and Lusardi (2007) argue that lack of understanding of economic and financial information
is a significant deterrent to stock ownership and that lack of literacy prevents households from
30

participating in the stock market. Awareness of the existence of stock (financial asset) is
exogenous to the investors choice set. Issuers and distributors of financial assets have strong
incentives to inform the pool of potential investors; broadening the investor base lowers the cost
of raising external capital for issuers and increases revenue for distributors and this can be done
by mailing, advertising in the financial press or with direct contact to potential investors. (Guiso
and Jappelli, 2005) used data to construct summary indicators of financial awareness, where one
of the measures of financial awareness is the number of assets that each individual knows
divided by the number of potential assets. The second measure is an index that gives less weight
to popular assets (such as checking accounts) than other assets that are less widely known (such
as corporate bonds and mutual funds and they weighted the index by the inverse of the
proportion of people aware of the assets and scaled it by the sum of the weights. Issuers will
target the individual (groups) that have a greater probability of investing in the stock market.
Secondly, individuals are more likely to be aware where the cost of sending signals is lower, for
instance in areas where the cost of contacting investors is relatively low. Thirdly, awareness
should be higher in areas where one can learn from peers as well as from the general media and
from intermediaries.
5.2.2 Relationship between Trust and Stock Market Efficiency in Uganda.
There was a strong significant positive correlation between trust and Stock Market efficiency.
This implies that if trust is improved then Stock Market efficiency is likely to be boosted in
Uganda.
Despite the establishment of Uganda Securities Exchange (USE) as part of the reforms in the
financial sector in Uganda, awareness and trust have remained a big challenge to the efficiency
of stock market. This is evidenced by the low and slow stock market participation by the

31

investing public, the registered declining trend in USEs listing of companies since 1998 and the
level of market capitalization. At the moment there are only 11 listed equities and two corporate
bonds (CMA Report, 2008).
A chairman of the board of USE had this to say. Overall assessment of the quality of
transactions indicates low levels of trust among the key players. There is need to pay attention to
every detail to ascertain capacity since most potential players are just settling in the country after
the war. Otherwise we shall all soon loose membership to these boards very soon if we hide from
management the need to revisit this core issue.
Guiso and Jappelli (2005), provide evidence that lack of trust affects stock market participation.
The determinants of awareness, and they reveal the probability that survey respondents are aware
of stocks, mutual funds and investment accounts is positively correlated with education,
household resources, long-term bank relations and proxies for social interaction, and concluded
that lack of financial awareness has important implications for understanding the stockholding
puzzle and for estimating stock market participation costs (G & L, 2000).
5.2.3 Relationship between Awareness, Trust and Stock Market Efficiency in Uganda
According to the results, the greatest predictor of the variation in relation to the magnitude of the
Beta co-efficient is Trust.
Trust of the stock Market is very important for economic transactions. Lack of Trust if not
checked may result to declining numbers of listed companies per year, decreased market
capitalization (% of GDP), reduced stock traded and turnover percent, which in turn will hamper
effective stock market participation. This research sought to address the gap.
According to the probit model in the capital market analysis (Myres, 2001), not only does trust
increase the likelihood an individual invests in stock, but it also increases the share of wealth

32

invested in stocks, conditional on investing in them. They tested this prediction when the
dependent variable is the portfolio share invested in stock (computed as the value of stocks held
directly divided by the value of financial assets). As in the participation estimates, the effect of
risk is poorly measured, while trust has always a positive and statistically significant effect.
Individuals who trust have a share in stocks 3.4 percentage points higher, or about 15.5% of the
sample mean. Ambiguity aversion has a negative effect on the share in stocks, while optimism
has a positive effect, but neither coefficient is statistically significantly. Adding these controls
leaves the effect of trust unchanged. Estimated effects and conclusions are similar if instead of
the share directly invested in stocks we look at the share invested in all risky assets.
5.3 Conclusions
We can conclude that there is low stock market effeciency in Uganda and that this is driven
partly by lack of awareness among the investing public and also by low trust.
Therefore in order to improve on the investor awareness to improve on the stock market
Efficiency of Uganda, a specialized unit should be adopted or strengthened responsible for
handling investor awareness.
Conclusions can be drawn that the trust affects stock market Efficiency. Since it is a general
weakness that cuts across, there is need for individual organizations to consider how they can
form inter-company linkages, harness and use them to improve sharing of knowledge and best
practices.
It can be concluded that Trust affects economic transactions in the stock market. Affirmative
action can be done by government through sponsoring staff on professional courses like the CFA

33

(certified financial Analysts), vigilant advertising, curriculum development and cross-listing to

improve on the volume.
5.4 Recommendations
Recommendations made by the study includes stepping up the awareness campaigns,
restructuring the curricular to have stock market studies at A-level and to make incomes on stock
trading tax free.
Government should make it a policy to divest through the stock exchange instead of looking for
a strategic partner. The locals should be targeted first before any foreign investors are brought on
board when it comes to selling local company shares. USE should also encourage more cross
boarder listing.
5.5 Areas for Further Research
The study concentrated on the stock exchange. However further research needs to be carried out
on why investors opt out of the stock market.

Further research also needs to be carried out on the reason behind the low propensity to list
stocks on the stock market.

The link between the other financial institutions like banks, money markets and the stock
exchange in terms of complimenting each other.

34

REFERENCES
Bennett, R. (2000): Trust, Commitment and Attitudinal brand loyalty: key constructs in
business-to-business relationships University of Queensland
CFA Curriculum (2009), Ethics and Professional Standards and Quantitative Methods, CFA
Institute, New York.
Cheung, C. & Lee M.(2000), "trust in internet shopping: a proposed model and measurement
instrument" AMCIS Proceedings. Paper 406
Comincioli B. (1996); The Stock Market As A Leading Indicator: An Application Of Granger
Causality; Illinois Wesley.
Cook, T., Gronke, P. (2001) The Dimensions Of Institutional Trust: How Distinct Is Public
Confidence In The Media? April
Delgado-ballester, E. (2000) Development and validation of a brand trust scale
Dunlop, T, & Korynne L. (2000), The development of an instrument to measure organizational
trust paper presented at the annual meeting of the American educational research association
(New Orleans, la, april 24-28).
Duschinsky, P. (2009) measuring trust & the trust/cost relationship
Ennew C. (2008) measuring trust in retail banking in china Journal of Marketing
Ermischa, J. Gambettab, D, Lauriea, H., Siedlera T. & Uhriga, N (2007) Measuring peoples
trust; Eliser working paper

35

Gasini G. & Georgarakos D. (2009) trust, sociability participation, April 30

Gavrilov, M & Anguelov, D (2001) Mining the stock market: which measure is best?
Guiso, L. & Jappelli, T. (2005), Awareness and stock market participation, University of
Sassari.
Johnson, A., Johnson & Bruce R. (1989), Econometrics, University of Wisconsin, Madison.
Morrone, A., Tontoranelli, N. & Ranuzzi; G. (2009)How good is trust? Measuring trust and its
role for the progress of societies
Naef, M. & Schupp, J. (2009)Measuring trust: experiments and surveys in contrast and
combination, March
Paiella, M. (2004); Heterogeneity in financial market participation: appraising its implications
for the CAPM, review of finance 8, 445480.
Renno, L. (2008) Assessing the validity and reliability of interpersonal trust measures in crossnational surveys, September fall, University of Brasilia
Todd, A. (2007) Trust measures and indicators for customers and investors
Tunney, R. & Shanks, D (2003) Subjective measures of awareness and implicit cognition
University College London.

36

Appendix I: Questionnaire on Stock Market Efficiency

(TO BE FILLED BY SENIOR MANAGEMENT)
Dear Sir / Madam,
My name is Lintari, John Murungi, an Msc (Finance & Accounting) student from MUBS. I am
carrying out a research entitled Awareness, Trust and Stock Market Efficiency the case of
Uganda Securities Exchange (USE). This is a partial requirement for the fulfillment of the
degree. The purpose of this questionnaire is to collect information appropriate for this study. The
information and views collected shall be treated with the utmost confidentiality and this is to
assure you that the information you give shall be highly valued and treated with the utmost
confidentiality.
Please spare some time and respond to the following questions.

37

Tick Yes or No in the box indicated.

A. BACKGROUND INFORMATION
1. Name of Respondent....................................................................................[Optional]
2. Gender of Respondent
MALE FEMALE

3. Marital status [Optional]

Single

Married

4. Years of participation on the stock exchange

Less than 5

6-10

Above 10 years

5. Membership on Board
CMA

Brokers

USE

Others

SECTION B: [AWARENESS]
Use the scale below to answer the questions that follow
Where 5-Strongly Agree; 4-Agree; 3-Not Sure; 2-Disagree; 1-Strongly Disagree
PHRASE
1

We are aware of how the stock exchange operates

38

We are listed on the stock exchange

The stock exchange is one easy way to mobilize funds for operations in
companies

The stock exchange has carried out vigorous awareness campaigns like
secondary school debates

The stock exchange distributes flyers to create awareness

The exchange produces its reports on time for the public to view

We are aware of the various financial instruments on the stock exchange

The exchange carries out awareness campaigns for investors

We know all the necessary requirements for listing on the stock

exchange

10

We now the procedure of trading on the exchange and we trust it

11

Investors dont have a fear to invest on the stock exchange

SECTION C: [RELATIONSHIP BETWEEN AWARENESS AND TRUST]

Tick the appropriate answer
QUESTION
1

We trust the transactions of the stock exchange as transparent

We are willing to invest on the stock exchange

It is profitable to invest on the stock exchange

It is easier and cheaper to raise funds from the stock exchange than the

other sources like banks.

5

We invest on the stock exchange because we trust its operations

39

The returns on the stock exchange are higher than those from other
investments

The USE carries out awareness campaigns to the investing public

The agents of the stock exchange are well trained and know what they
are doing

We trust in the advice that is given to us by the brokers of the stock

exchange

10

As a result of creating awareness by the exchange people trust the

exchange

11

We also trust the transactions of the other supporting institutions to the

exchange

SECTION D: [RELATIONSHIP BETWEEN AWARENESS, TRUST AND STOCK

MARKET EFFICIENCY]
Tick the appropriate box.
PHRASE
1

Our organization solely depends on funds raised internal for expansion

We Currently rate the financial performance of our organization as healthy

Raising funds through the stock exchange is much easier than through the

banking system.
4

The level of investments on the stock exchange is increasing over time

Whenever there is an investment opportunity on the stock exchange we take

it up because we trust the operations of the exchange

40

The stock exchange is relatively efficient in terms of operation and returns

The legal framework in place is conducive for the proper operation of the
exchange

The other financial institutions offer full support services to the exchange

The stock prices on the exchange reflect a fair value of the current
performance of the listed companies

10

As a result of the concerted efforts in terms of awareness campaigns have

yielded good results

11

On the whole our organization is doing well as a result of operating with/on

the exchange

13

Our clients are getting value for money services from the exchange and its
agents

14

Our revenues have been improving over time since we listed on the
exchange

15

The number of listed companies is increasing over time as a result of the

trust and efficiency of the exchange

BOARD COMPOSITION, MEMBERSHIP:

What is the board composition of your organization?
SECTION E: Others
1. In your opinion what do you think are the major challenges hindering efficiency in
the

development

of

the

stock

exchange.................................................................................

41

................................................................................................................................................
................................................................................................................................................
................................................................................................................................................
....................................................................................................................................
2. Suggest some recommendations in your view on how the above challenges can be
improved

42

Appendix II - List of Stock Brokers in Uganda

1. Baroda Capital Markets (U) Ltd.

2. Crane Financial Services (U) Ltd.
3. Equity Stock Brokers (U) Ltd.
4. MBEA Brokerage Services (U) Ltd.
5. Dyer & Blair (Uganda) Ltd
6. African Alliance (Uganda) Ltd
7. Renaissance Capital Ltd
8. Crested Stocks and Securities Limited

Appendix III -List of Listed Companies in Uganda

Equity

Status

British American Tobacco Uganda

Cross Listed
Locally

Listed

Bank of Baroda Uganda

NSE

Development Finance Company of Uganda Ltd

Locally Listed
Locally

East African Breweries Limited

Jubilee Holdings Limited

Listed

with

Listed

with

NSE
Locally

with

NSE

43

Locally

Listed

Kenya Airways

NSE

New Vision Printing and Publishing Company Ltd

Locally Listed

Stanbic Bank Uganda

Locally Listed

Uganda Clays Limited

Locally Listed
Locally

10 Equity Bank Limited

with

Listed

with

Listed

with

NSE
Locally

11 KCB Group

NSE

12 National Insurance Corporation

Locally Listed

44