Effect of Selected Macroeconomic Variables on Capital Market Development in Kenya

Abstract

Capital markets operate in a macroeconomic environment which has the potential of influencing its activities, operations, its development and its overall profitability. The study sought to determine the effect of selected macroeconomic variables on capital market development in Kenya. The study made use of secondary data from the capital markets authority and the Central Bank of Kenya. Data was analyzed on the basis of the mean and the F test statistic was computed at 5% significance level and Analysis of Variance (ANOVA). From the regression model, the study found out that the selected macroeconomic variables namely; economic growth, interest rates, inflation rates and exchange rates influenced capital market development. The study found out that the four independent variables that were studied which included economic growth, interest rates, inflation rates and exchange rates explain 53.7% of capital market development. The study therefore concludes that selected macroeconomic variables significantly affects capital market development in Kenya. The study recommends that policy makers consider macroeconomic environment as the leading determinant of capital market development in Kenya in making the policies which affect the capital markets in Kenya.