Effect of Macro Economic Factors on Share Price Volatility Among Firms Listed at the Nairobi Securities Exchange

Abstract

The study sought to determine how the NSE reacts to changes in the macroeconomic variables. Specifically, the purpose to find out how money supply, exchange rates, interest rates, and inflation influence the NSE. The study was anchored on the Arbitrage Pricing Theory, Theory of Efficient Market Hypothesis, and the Present Value Model. The study covered all firms listed on the NSE. The period of analysis was 21 years, which is 2000 to 2020. Data analysis was done using SPSS version 25 using both descriptive analysis methods and inferential analysis. This was done using both descriptive and inferential analysis. Descriptive analysis was used to summarize the data into meaningful form using descriptive measures such as means and standard deviations. Trend analysis was also applied to visualize the data and understand the underlying trends. Regression was used examine the association between the macroeconomic variables and share price variability. The study showed strong relationship between the variables (R=0.745). The R square value obtained, 0.555 indicated that variation in the macroeconomic variables caused 55.5% variation in the NSE performance. From the analysis, CBK is recommended to ensure that the interest rates are stable and favorable to the borrowers in order to encourage borrowing in order to promote investment in the stock market leading to improved performance. The CBK is recommended to strengthen its monetary policies in the country in order to control and regulate inflation at sustainable levels. The CBK is therefore recommended to closely monitor the flow of money in the economy to ensure money demand and supply in the economy is balanced.