Effects of Foreign Portfolio Flows on the Capital Market in Kenya

Abstract

This research paper aims at studying the foreign portfolio investment and how they related to market capitalization in Kenya. The paper uses the neoclassical theories of capital flows in developing the analysis. The study uses secondary data in carrying out the analysis. For this purpose, times series monthly data from 2007 to 2015 is used. On the basis of stationary ordinary least square model is used to examine how foreign portfolio investment, interest rates, exchange rate, and returns in foreign and domestic markets influence and affect market capitalization in Kenya. The study shows that there is a significant positive impact of foreign portfolio investment on market capitalization in the Kenyan capital market. It is also seen that fluctuations of the exchange rate negatively affect the market capitalization, whereas returns in the domestic market positively affect the market capitalization