Relationship Between Exchange Rate and Stock Prices in Kenya

Abstract

Mutual relations between foreign exchange markets and stock markets have attracted much attention of researchers and academics since the beginning of 1990s. The last quarter of a century has witnessed significant changes in the international financial system such as emergence of new capital markets. gradual abolishment of capital inflows barriers and foreign exchange restrictions. or adoption of more flexible exchange rate arrangements in emerging and transition countries. All these mentioned features have broadened the variety of investment opportunities but, on the other hand, they have also increased volatility of exchange rates and added a substantial portion of risk to the overall investment decision and portfolio diversification process. This study, therefore, sought to establish the relationship between stock prices and exchange rate by establishing the granger causation between the two.................