Analysis of Share Price Determinants at Nairobi Securities Exchange

Abstract

Macroeconomic variables are a major determinant of the economic well being of any country as they affect many facets such as Gross Domestic Product (GDP), balance of trade and currency interactions. In Kenya, there have been no studies specifically related to the effects of macroeconomic variables on share prices of companies listed at Nairobi Securities Exchange (NSE). The present study analyses the share price performance of seven firms and seeks to identify the factors that influence share prices for the selected firms in various sectors at NSE by developing a model (s) for share price determination.

Data was collected on the seven variables under study for a period of five years (2008 – 2012) and regression analysis was utilized to determine the effect of selected macroeconomic variables on the share prices of seven companies in seven sectors at NSE and the share prices for the companies were analyzed in terms of change in magnitude. The general results indicate that there is no one model to predict share prices at NSE. Only one company, Equity Bank, had a model that could be used to determine share prices based on the variables under study and this could be explained by the fact that the share prices of Equity Bank had a big differential (of KShs 312.15) with the highest price at KShs 324.00 and the lowest price at KShs 11.85 while the share prices of the other companies under study had small differentials with the biggest differential being KShs 54.25. The results of the empirical analysis are consistent with most of the findings in the literature review and support the evidence that the selected determinants have little effect on share price. This could have been influenced by the period under study (five years) and maybe with a longer time period the results could be different. This is further evinced by the results of the regression of Equity Bank share prices which had a big differential denoting that in the long run, as prices change, a model could be developed.