Effects of Macroeconomic Variables on Stock Market Returns of Firms Listed in Nairobi Securities Exchange

Abstract

Even though financial markets have been liberalized and companies compete with each other in Kenya, companies still have to do a lot to achieve the required level of performance due to macroeconomic factors. The research aimed to find out the impacts of macroeconomic issues on stock market proceeds of corporations in Nairobi Securities Exchange. Modern portfolio theory and arbitrage pricing theory guide this study.The research a descriptive research design. A descriptive survey allowed the researcher to designate the features of the significant variables. The independent variables include interest rates, inflation and exchange ratesthe dependent variable stock market returns. This research is about impacts of macroeconomic factors on stock market returns of companies in Nairobi Securities Exchange.The study focused on all 65 companies listed in NSE. Information on exchange rates and interest rates over the period of interest was acquired from the Central Bank of Kenya. Information on inflation trends was acquired from the Kenya Bureau of Statistics. Exchange rate, inflation, and interest rates information can be from published literature and Financial reports. The study collected data for the last five years 2013-2017. Descriptive statistics were utilized to explain quantitatively the significant attributes of the variables utilizing mean, standard deviation, and frequency. The outcomes of the study were presented using tables, percentages, and frequencies. This study concludes that high interest rate causes a rise in the cost of business that eventfully reduces the profits, while a reduction in interest rate is an optimistic message in the stock market that eventually causes a rise in the stock returns. The study concludes that Inflation rates are related significantly and negatively to the NSE All share index. It also reached the conclusion that high exchange rate risks have a negative effect on stock proceeds. The exchange rate may create vagueness in the market as the value of assets is eroded due to depreciation, thereby resulting to a fall in stock returns and that GDP growth rate is significantly and positively related with the NSE index. GDP growth improves the performance of the stock market with the related growth in wealth, employment greater confidence in the market. The study recommends that CBK should find ways on how to manage exchange rates this will safe guard the performance of firms. Since Stock market proceeds and interest rates are negatively correlated, the government should implement better microeconomic policies to manage this variable to enhance the performance of NSE.