Capital Market Development in Ethiopia Theoretical Perspectives, Current Progress, and Policy

This review examines the evolution, challenges, and prospects of capital market development in Ethiopia amid the historic launch of the Ethiopian Securities Exchange (ESX) in 2025. Grounded in the Efficient Market Hypothesis (EMH), Capital Asset Pricing Model (CAPM), Market Sequencing Theory, and Arbitrage Pricing Theory (APT), this paper explores their empirical relevance to the Ethiopian context. It reviews recent legislative, regulatory, and macroeconomic changes shaping the capital market landscape, assesses progress and bottlenecks of the ESX, and situates Ethiopia’s experience within broader African and global capital market trends. Drawing on recent Ethiopian, African, and international sources, the paper discusses the influence of regional integration, digital infrastructure, investor behaviour, financial intermediation, ESG imperatives, and sustainable finance. It concludes with policy recommendations to build a resilient, inclusive, and efficient capital market ecosystem, proposing pathways for leveraging market development as a driver for economic transformation in Ethiopia and lessons for other emerging markets.