The Relationship Between Macro Economic Variables And Stock Market Performance In Kenya

Citation:
Elly OD, Oriwo AE. "The Relationship Between Macro Economic Variables And Stock Market Performance In Kenya." DBA Africa Management Review . 2012;3(1):38-49.

Abstract:

This study investigates the relationship between macroeconomic variables on NSE All
share index (NASI) and goes further to determine whether changes in macroeconomic
variables can be used to predict the future NASI. Three key macroeconomic variables
are examined and they include lending interest rate, inflation rate and 91 day Treasury
bill (T bill) rate. Secondary data for the periods March 2008 to March 2012 is collected
as follows; data for NASI was obtained from the Nairobi Securities Exchange (NSE),
data for inflation was obtained from Kenya National Bureau of Statistics and finally
data for lending rates and 91-day T Bill was obtained from Central Bank of Kenya
(CBK). The data is analysed using regression method. The lending rate is dropped from
the regression model since it is correlated with the 91-Day T bill rate. The findings in
the study indicate that 91 – day T bill rate has a negative relationship with the NASI
while inflation has a weak positive relationship with the NASI. Based on these findings,
the study recommends monitoring of the macroeconomic environment since the
changes in the macroeconomic variables has an effect on the stock market performance,
which also influences the foreign investor’s decisions in the local investments.

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