Effect Of Macroeconomic Variables On Share Price Index Volatility At The Nairobi Securities Exchange

Abstract

An understanding of the dynamic behavior of stock markets is as such important for policy makers, macroeconomists, and market analysts. Investments are guided by the perceived risk profile, which is subject to macroeconomic variables. Therefore, this study1 sought1 to1 establish1 the1 influence1 of1 macroeconomic1 variables1 changes1 in1 Nairobi1 securities1 exchange1 index1 volatility. 1 The1 study1 utilized1 a1 descriptive1 research1 design. 1 Secondary1 data1 was1 acquired from the financial reports of respective firms while data on the securities and their movement were acquired from1 the1 Nairobi1 Securities1 Exchange. 1 Information1 on1 exchange1 rates1 and1 interest1 rates1 over1 the1 period1 of1 interest1 was1 acquired1 from1 the1 Central1 Bank1 of1 Kenya1 while1 information1 on1 inflation1 trends1 was1 acquired1 from1 the1 Kenya1 Bureau1 of1 Statistics. 1 Descriptive1 statistics was utilized to explain quantitatively1 the1 significant1 attributes1 of1 the1 variables1 using1 mean, 1 frequency1 and1 standard1 deviation1while multiple regression was utilized to describe the effects of macroeconomic variables changes in Nairobi securities exchange index volatility. Findings from this1 study1 showed1 that1 a1 unit1 increase1 in1 interest1 rate1 while1 holding1 all1 the1 other1 factors1 constant1 would1 lead to a decrease of volatility index at NSE. Results also showed a negative association between1 inflation1 rate1 and1 volatility1 index1 of1 Nairobi1 Securities1 Exchange. 1 Further, 1 exchange1 rate1 had1 a1 negative1 influence1 on1 volatility1 index1 at1 Nairobi1 Securities1 Exchange. 1 However, 1 from1 the1 regression1 predictions, 1 it1 was1 noted1 that1 GDP1 growth1 had1 a1 positive1 influence1 on1 volatility1 index1 at1 Nairobi1 Securities1 Exchange. 1 The1 study1 recommended1 Central1 Bank1 of1 Kenya1 to1 come1 up1 with1 an effective policy on interest rates to ensure that their rise and fall does not adversely impact the Kenyan economy. Study1 recommended1 the1 government1 to1 ensure1 a1 stable1 economy1 and institute policies to ensure that the economy is growing to enhance the volatility index. It also recommended the monitory committee department of central bank of Kenya to maintain1 a1 stable1 foreign1 currency1 exchange1 if1 the1 activities1 at1 the1 stock1 exchange1 are1 to1 be1 promoted. 1 Additional study can be carried using other variables like political stability, balance of payments, taxation among other variables. For the managers of firms listed at NSE, the1 findings1 of1 this1 study1 provide1 valuable information to guide their management decision following the changes in the macroeconomic variables in Kenya in their endeavor to maximize the stakeholder’s wealth. The capital markets regulatory authorities use the information to advise the Government on policymaking and areas local market may be seeking Foreign Direct Investments.