Relationship Between the Nse Stock Index and Selected Macroeconomic Indicators (2000-2010)

Abstract

This study examines the impact of macroeconomic variables, inflation, interest rate, exchange rate and money supply on the performance of shares at the Nairobi stock Exchange over the period 2000 to 2010. The performance of the stock exchange was represented by the movement of the 20 share price index. Data was obtained from NSE, CBK, and KNBS. The purpose of this study was to establish the relationship between the NSE 20 share index and the aforementioned macroeconomic variables. The secondary data was collected from published reports and figures from the Nairobi stock exchange, the Central Bank of Kenya and the National Bureau of statistics. This data was analysed by use of multiple regression modelling. The findings of the analysis indicate that the four selected macroeconomic variables (Inflation, Interest rate, Money supply and exchange rate) do indeed impact on the financial performance of the share prices at the Nairobi stock Exchange. However the four macroeconomic factors under study may not be the only ones that affect stock prices. Hence the study recommends that further research need to be carried out with more variables entered into the regression model.