Economic Performance Indicators and Stock Returns at the Nairobi Securities Exchange
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Date
2013Author
Kinyae, Alexander M
Type
ThesisLanguage
enMetadata
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The study is an assessment of the economic performance indicators and stock returns at
the Nairobi Securities Exchange. Stock market activities play a major role in
determining the level of economic activities in both emerging and developed economies,
by providing and efficiently allocating capital for investment, providing appropriate
platform to engender best corporate practices that will result in growing investment and
further growth of the economy.
The study adopted an explanatory research design. The population of this research
consists of all the 62 listed companies in the Nairobi Securities Exchange. A census
methodology was employed since all the listed firms were studied for a period of five
years (2008 to 2012). The main source of data was the NSE Handbooks. The study used
Statistical Package for Social Sciences (SPSS) to generate the descriptive statistics and
also to generate inferential results. Regression analysis was used to demonstrate the
relationship between the macroeconomic factors and stock returns in the NSE.
Results show that there is a positive relationship between stock returns and underlying
inflation, overall inflation, economic growth, interest lending rate. Results also revealed
that there is a negative relationship between stock returns and exchange rate. However,
the only statistically significant variables in the study were exchange rate and economic
growth. Sectoral analysis results further showed that different sectors stock returns are
mainly influenced by three economic indicators namely economic growth, exchange
rates and overall inflation. From sectoral analysis, it was concluded that economic
growth and exchange rates are main determinants of stock returns.
It is recommended that investors should take into account economic growth when
predicting stock returns. This is because periods of high economic growth lead to an
increase in stock returns. In addition, it is recommended that investors should factor in
the exchange rates when making investments (making stock return predictions). This is
because an increase in exchange rates leads to a decrease in stock returns.
Publisher
University of Nairobi, School of Business