The Effect of Macroeconomic Factors on Performance of the Nairobi Securities Exchange

Abstract

The main purpose of the research was to find out the effect of macroeconomic factors on the performance of the Nairobi Security Exchange. More specifically, the researcher sought to determine how inflation rate (Measured by Consumer Price Index), Money Supply Growth (Measured by Change in Money Supply) and interest rate (Measured by Lending Rates) affected performance of NSE. The study adopted descriptive research design targeting all firms making up the 20 share index. Data was collected from secondary sources using data collection sheet. The collected data was analyzed using SPSS software. The results were analysed in Tables and graphs. The study established that Pearson coefficient r for inflation was -0.376, showing that it is inversely related with performance of NSE; inflation significantly affected performance of NSE at 5% i.e. 0.000<0.05, money supply growth in the economy indicated an r=0.237 and interest rate had Pearson correlation r=-0.032. The study found out that there was an inverse moderate and significant connection between inflation and performance of NSE, inflation had significant influence on performance of NSE, there exist a weak unswerving connection between money supply and performance of NSE, there was an inverse weak relationship between interest rate and performance of NSE, interest rates had significant influence on progress of NSE. The research endorses that the Central Bank of Kenya CBK should strengthen its monetary policies to regulate and control inflation to sustainable levels. There is need to balance the supply and demand for money in the economy. The management of NSE and the Capital Market Authority CMA should create awareness among investors to invest more in equities when level of interest rates in an economy are favorable.