| dc.description.abstract | Inflation as a macroeconomic indicator in the Kenyan economy has been fluctuating a lot since the year 2007 affecting the trading operations and especially Liquidity of stocks at the Nairobi Stock Exchange. The main objective of this study is to investigate the relationship between the overall inflation rates and the liquidity of companies quoted at the Nairobi Stock Exchange.
To achieve the objective of the study, regression models were developed using month on month overall inflation rates as the independent variable and both segment wise and market wide trading volume as the dependent variable. An empirical study was conducted using NSE listed firms as the population. The period of analysis was three years from January 2007 to December 2009 on a monthly basis.
The findings of the study indicate that overall inflation rates influence the stock market liquidity at varying degrees depending on the segment. There is however a positive relationship between overall inflation rates and market wide liquidity at the NSE which is an indication that as inflation rates go up, the overall market liquidity in terms of trading volume also goes up and vice versa.
The findings indicate a fluctuating trend of both variables as per the data analysis in chapter 4 depending on the sector being looked at. From the pattern on the findings it can be concluded that the higher the level of inflation rates, the higher the liquidity and vice versa for the market wide trading involving all segments.
While when looking at the various segments, Commercial and Services sector and the finance and investment sector replicate the market wide relationship of positive and direct relationship while the Agricultural and Industrial and Allied sectors are showing an inverse relationship. The significant difference in the relationships in the different sectors can be attributed to the fact that firms in some sectors such as agriculture are mostly affected by the underlying inflation rates and not the overall inflation rates. | en_US |
