An empirical investigation of the relationship between selected macroeconomic variables and the Nairobi stock exchange-20 (NSE) share index
Abstract
This study investigates the relationship between stock market and some
selected macroeconomic variables in Kenya. The study use NSE-20 share
index to represent Kenya stock market and real GDP growth rate, inflation,
interest and Treasury bill rates as macroeconomic variables. The relationship
between the stock market index and the macroeconomic variables is
analyzed using quarterly time series data covering the period 1999-2008.
Summary statistics, correlation and regression analysis were employed to
ascertain the relationships. Findings of the study reveal that macroeconomic
variables explain about 70% of the variation of the market share index. The
regression coefficients show that the market share index is positively related
to Inflation rate, Treasury bill rate and Growth Domestic Product while it is
negatively related to the Interest rate. With these results, it is important to
highlight that there is the need to implement prudent macroeconomic
policies in order for Kenya to derive maximum benefits from stock market.
Policy-makers need to be careful too when trying to influence the economy
through changes in macroeconomic variables such as the interest rate,
treasury bills as this may inadvertently depress the stock market, and curtail
capital formation which itself would lead to further slowdown of the
economy
Publisher
University of Nairobi School of Business