The Relationship Between Securities Markets Development and Economic Growth in Kenya

Abstract

This study sought to find out linkage between Securities markets development and economic growth in Kenya. The following factors determine the Securities market development: Market capitalization, regulations, trade and liquidity. This research took a cause and effect approach to establish the association between the Securities market performance and monetary performance in Kenya for the last eleven years. The quantitative research method was employed to define the nature of the relationship between the variables. The population of the study was Nairobi stock Exchange and to fulfill the purpose of the study data was collected from the Nairobi stock exchange. The study employed the Regression analysis model as well as the ANOVA test for causality to estimate as well as provide evidence regarding the nature and direction of relationship of the variables. The results depict a positive correlation between foreign direct investment, Market Capitalization, foreign trade and Securities turn over. Expect for Securities traded value the rest of the variables can act as good predictors of Economic growth. With the above results, the policy makers should gear their efforts towards encouraging more people to participate in the securities Markets. Recently, Kenya treasury had made a good start through allowing people to buy bonds by mobile phone Applications but more incentives are required to enhance it and grow it further. Further studies are recommended on whether the derivatives can bring about a turnaround in the capital market operations, creating opportunities to the participants to realize optimal reward from their investments and to manage the associated risk effectively.