The Relationship Between Foreign Exchange Rates and Stock Market Returns in Nairobi Securities Exchange
View/ Open
Date
2017Author
Kithome, Lilian, N
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
There are number of reasons to believe that foreign exchange rates should be a
contributing factor in determining the stock market returns. Significant value of a
nation’s capital is tied up in the stock market and investors’ wealth is at stake
depending on how the market performs. There are cost implications on all economic
agents as a result of foreign exchange market occurrences. Internationalization of
capital markets has led to greater flows of money between market exchanges and in
the cross-listing of firms. The appreciation of a currency reduces its ability to compete
for exports; thereby hurting the domestic stock market. This study sought to
determine the effect of foreign exchange rates on stock market returns at the NSE.
The independent variable was exchange rates as measured by monthly exchange rate
between Ksh and USD. The control variables were inflation rates as measured by
monthly CPI and interest rates as measured by monthly CBK lending rate. Stock
market return was the dependent variable which the study sought to explain and it was
measured by monthly returns computed from the 20 share index. Secondary data was
collected for a period of 10 years (January 2007 to December 2017) on a monthly
basis. The study employed a descriptive research design and a multiple linear
regression model was used to analyze the association between the variables. Statistical
package for social sciences version 21 was used for data analysis purposes. The
results of the study produced R-square value of 0.113 which means that about 11.3
percent of the variation in stock market returns at the NSE can be explained by the
three selected independent variables while 88.7 percent in the variation was associated
with other factors not covered in this research. The study also found that the
independent variables had a weak correlation with stock market returns (R=0.337).
ANOVA results show that the F statistic was significant at 5% level with an F statistic
of 4.949. Therefore the model was fit to explain stock market returns at the NSE. The
results further revealed that individually, exchange rates and inflation are statistically
significant determinants of stock market returns at the NSE while interest rate is not a
significant determiner of stock market returns. This study recommended that policy
makers should pay attention to the prevailing foreign exchange rates as they can
negatively affect stock market returns recorded at the Nairobi Securities Exchange
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: