The Effect of Foreign Direct Investments on Stock Market Returns at the Nairobi Securities Exchange
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Date
2018Author
Makeni, Elizabeth N
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The study sought to establish the relationship between FDI and stock market returns. The
study was grounded on a descriptive research design. The secondary data on FDI, GDP
growth, inflation, money supply, and NSE 20 Share Index was obtained from the Nairobi
Securities Exchange (NSE), International Monetary Fund (IMF), and Central Bank of
Kenya (CBK). The data covered the years 2002 to 2017. The data was analysed using
Statistical Packages for Social Sciences (SPSS) (version 24) for descriptive and
inferential statistics. Descriptive statistical techniques, measures of central tendency, was
used to summarize the data into means and standard deviations. Inferential statistics
included correlation and regression analysis. Correlations were used to determine the
association between the each of the independent variables, notably, FDI, GDP, money
supply, and inflation, the dependent variable, stock market returns. Regressions were used
to demonstrate the relationship between FDI inflows and stock market returns, with GDP
growth, money supply, and inflation as the control variables. Findings were presented in
tables and graphs. The descriptive findings show that FDI inflows have consistently
declined since 2011. On the other hand, money supply has consistently increased for all
the years covered in the study. On the other hand, inflation has been highly volatile over
the 15-year period. GDP growth has averaged between four and six percent over the past
10 years. Finally, NSE 20 Share index analysis indicates fluctuations in stock
performance, with volatilities observed annually. Correlation analysis show that FDI has
a weak but positive association with stock market returns. There was a strong and
significant association between money supply and stock market returns as well as GDP
and stock market returns. Inflation was negatively associated with stock returns.
Regression coefficients indicate a positive and insignificant link between FDI net inflows
and NSE 20 share index growth. R Square value shows that FDI is a weak predictor of
stock market returns. Taking the money supply, inflation, and GDP as control variables,
FDI has a positive effect on stock market returns; however, it is not statistically
significant. The study recommends adoption of strong monetary and fiscal policies
governing money supply and inflation. Further, the study also recommends the
development of tailored policies that have the potential of overcoming market
imperfections and promoting the integration of domestic and foreign firms into global
networks hence increasing their ability to attract foreign capital.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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