Stock Market Performance and Economic Growth in Kenya

Abstract

Stock market is seen as an avenue where efficient distribution of capital resources takes place and that through this market, borrower’ obtain funds which they utilize to finance various long term projects, while savers use stock markets to invest their surplus funds. Many empirical studies have been conducted to assess how stock market performance relate with economic growth. However, the findings remain inconclusive on the relationship especially in developing economies. The present study therefore seeks to investigate whether stock exchange performance affects economic growth in Kenya. The objective of the study was to investigate effects of stock market performance on economic growth in Kenya. Causation design was used to assess the correlation between performance of stock market and Kenya’s economic expansion over a period from 2010-2020. The target population entails the entire 63 business firms trading with the Nairobi Securities Exchange from 2010 to 2020. The study relied on secondary data gathered annually for a period of ten years, from 2010 to 2020, obtained from different economic investigations from Nairobi Securities Exchange (NSE), Kenya National Bureau of statistics (KNBS), Capital Markets Authority (CMA) and World Bank statistics. The study used descriptive statistics inform of percentages, frequencies and mean and presented the results in tables and graphs. Inferential results were generated by regression analytical approach. Results identified a bidirectional causality relationship between economic growth and stock turnover ratio, stock market capitalization and stock traded value. The government should formulate and execute Stock Markets strategic policies to guarantee relative stability and steady growth and development of the economy.