Effects of selected macroeconomic variables on the equity market performance of Nairobi securities exchange

Abstract

The research looked into the impacts of the selected macroeconomic variables on the performance of equity market of NSE. Nonetheless, the study also assessed if changes in the variables picked for this research could be applied in forecasting the overall future wellbeing of the Share Index of NSE. Qualitative data for periods ranging from Jan 2010 to Dec 2019 was gathered from public institutions and websites and was analyzed using STATA 15 given it is time series data. The study identified both interest rate and exchange rate had negative impact but significantly related to equity market performance. However Inflation rate was found to have positive and substantial effect on performance of the equity market. Further, Gross Domestic Product variable was on the contrary found to negatively and insignificantly affect equity market performance. The F statistic was also significant justifying the fitness of the model in explaining the performance of the share prices. The study suggests CBK keeps an eye on inflation rates and exchange rates, reason being, high inflation rates hike prices of commodities making life difficult for the citizens , whereas high interest rates scare away borrowers who could have taken up loans from financial institutions and invest in various economic activities, hence good for the economy. Nevertheless there is also an evidence showing lower rates improve performance of equity market.