Macroeconomic Determinants of Stock Market Performance in Kenya

Abstract

The study sought to establish macroeconomic determinants of stock market performance in Kenya. This paper used a descriptive design. Target populace was firms under NSE 25 index. These firms were preferred as they represent a larger chunk of the best performing firms at the NSE and cover the largest contribution in the market performance. This investigation utilized secondary data sources. This was collected based on reports from NSE, CBK and KNBS. The data on exchange rate, inflation rate and GDP was mined from the CBK website. Data on capital inflows were mined from CBK economic reports. In the research, NSE reports provided information relating to stock market performance in Kenya. Aggregate quarterly data was collected in analysis for ten years spanning 2011 and 2020. This gave a total of 40 data points. The data was mined using a data collection schedule based on the various metrics used to measure the variables for the study. Data collection schedule was utilized as the data gathering tool per year and quarter. This research utilized quantitative data analysis methodologies. Analysis adopted regression and measures of central tendencies like mean, standard deviation, frequencies and percentages generated using SPSS 25. Regression was done to establish the effect the determinants on stock market performance. This was done by the use of multiple regression model. Diagnostics tests done for this study was normality test, homoscedasticity test and Multicollinearity. In order to test the significance of the model, f-statistics was used. The findings showed an R value of 0.775. Hence, the researcher concludes that macroeconomic determinants have a strong relationship with stock market performance in Kenya. Findings showed that that exchange rate, inflation rate, gross domestic product and foreign flows contributed to 60.1% to stock market performance. Hence, macroeconomic determinants are the major factors influencing stock market performance in Kenya. From the regression analysis, exchange rate showed a positive and significant regression coefficient. Hence, exchange rate has a positive and significant effect on stock market performance in Kenya. The findings also showed that inflation rate had a negative and significant regression coefficient. showing a negative and significant effect on the stock market performance in Kenya. Gross domestic product showed a significant and positive regression effect on the stock market performance in Kenya. Foreign capital flows showed a positive and significant regression coefficient. Foreign capital flows have a positive and significant effect on stock market performance in Kenya. The study recommends that in their attempt to improve their stock performance, the stock market in Kenya should consider the macroeconomic determinants in their key performance decisions.