dc.description.abstract | Exchange rate is an important macroeconomic factor driving economies around the world.
Equally important, is the performance of the stock market. Literature on the effect of exchange
rate on stock market performance indicates mixed findings. This is an indication that debate on
the relationship between exchange rate and stock market share indices around the world is still
far from over. Arising from this, the study had sought to investigate the effect of real exchange
rate on the Nairobi Securities Exchange. The study focused on the Nairobi Securities Exchange
20 share index and the Kenya shillings/United States Dollar real exchange rate. The study
applied simple regression (ordinary least squares) on half-yearly data for 16 years, that is, from
2001-2016. Data was obtained from Nairobi Securities Exchange data base, Kenya National
Bureau of Statistics, and the United Nations Conference on Trade and Development. Since
ordinary least square regression estimates are affected by multicollinearity and heteroscedasticity
problems, multicollinearity and heteroscedasticity tests were conducted on the variables. These
tests confirmed the absence of both multicollinearity and heteroscedasticity meaning that the
estimated coefficients are valid, and the study can draw reliable inferences. Findings indicate that
real exchange rate is significant and positively correlates with the Nairobi Securities Exchange
index. In addition, the rate of inflation was also found to be significant but with a negative sign
(relationship). Based on these findings, the study recommended for the government to put in
place better policies to manage levels of inflation. | en_US |