The relationship between the GDP and share price movement at the Nairobi Stocks Exchange
Over the past two decades, capital markets in developing countries have experienced a rapid evolution. The share market is continuously moving and changing and it is affected not only by the success of the listed companies, but also by the dynamic business environment. Share prices are very volatile and keep on changing because of several reasons, both predictable and unpredictable. The knowledge of how public financial information causes stock prices to change is therefore of vital importance for the stock exchange market players bearing in mind that current future investors usually value the share price of a company. The uncertainty surrounding the share price movements forms the basis of the proposed study which sought to establish the relationship between the GDP and share price movement at the Nairobi stocks exchange. The study used descriptive design in describing the relationship between share price movement and GDP. The population constituted 56 companies listed in the NSE as at December 31, 2010. These companies were under; Agriculture, Commercial and Services, Finance and Investments, Industrial and Allied and Alternative Markets Investment segment. The study used secondary data which was collected from the Nairobi Stock Exchange (NSE) databases on the NSE Index and Annual real Gross Domestic Product (GDP) data collected from Central Bank of Kenya (CBK) for the period between the first quarter of 2000 and the fourth quarter of 2010. The empirical analysis was employed was used to analyze the data through the help of Statistical Package for Social Sciences (SPSS). A multiple regression model was also employed to examine the relationship between Gross Domestic Product (GOP) and Stock price movement. The study found out that during the period 2000-2010, while GDP has been on gradual increase, stock market performance has been erratic with a non unidirectional increase; hence stock market performance had a high variation than Real GDP. The highest performance of ,the GDP was in 2010, while on the other hand, findings show stock market performed better in 2006. The researcher concludes that GDP would lead to increase in stock market performance. He recommends that any investor who wants to invest by buying or selling shares in the stock market; he should closely monitor the GDP performance to determine whether it's viable to invest then. Investors should buy shares when GDP is performing poorly and sell when the GDP performs well for them to have valuable investments.