Effect of Macro-economic Variables on Stock Marketperformance in Kenya

Abstract

Stock market performance has become an essential part of any country’s economy and a strong indicator of general economic performance. The stock market growth is directly related to the economy which consists of various fundamental macroeconomic variables. The Kenyan stock market has been performing poorly in the recent years with the macroeconomic environment being very volatile. This study wanted to examine effect of macro-economic variables on stock market performance in Kenya. Descriptive research design was applied in this study. Quarterly secondary data was collected for 15 years (2006-2020). Data for Money Supply (M3) was obtained from the Central Banks, gross domestic product (GDP) from International Momentary Fund (IMF) and inflation from Kenya National Bureau of Statistics website. Data analysis was done using correlation and multiple linear regression with model significance done via F-statistics. From the descriptive statistics, the stock market performance as measured by NSE 20 share index averaged at 3792.8; GDP at 5.014%; quarterly interest rates at 14.67%; inflation at 7.4050%; and money supply at 2135.6. From the regression, GDP had an inconsequential effect; interest rate had a substantial favourable effect; inflation had an inverse effect; while money supply had an inverse effect on stock market performance. The study concludes that GDP had an inconsequential effect stock market performance in Kenya. The study also concludes that interest rate has a favourable effect stock market performance in Kenya. However, it concludes that inflation and money supply have an inverse effect on stock market performance in Kenya. The study recommends that the Kenyan government come up with monetary policies that would reduce the levels of inflation and money supply within the country. The study also recommends that the government comes up with policies that would increase the interest rates for improved stock market performance.