Effect of Diaspora Remittance on Stock Market Performance at the Nairobi Securities Exchange

Abstract

Stocks market is an important component of a market economy and provides companies with access to capital and vital information to investors. Additionally, stock market plays an important role on liquidity creation and economic growth. It acts as a major channel through which the savings of the surplus unit is transformed into medium and long term investments in the deficit unit of the economy. diaspora remittances on the other hand are vital to economic performance especially in developing countries. The relationship between diaspora remittances and stock market performance has been highly neglected by scholars with minimal empirical evidence available. This is not withstanding the fact that diaspora remittance to developing world has been on the rise with World Bank (2015) expecting the remittance to reach $440 billion in 2015, an increase of 0.9 percent compared to 2014.Therefore this study sought to determine the effect of diaspora remittances on stock market performance using evidence from the Nairobi Securities Exchange. The study used secondary data collected from the Central Bank of Kenya and Nairobi Securities Exchange. Stock market performance was measured by Nairobi Securities Exchange All Share Price Index (NASI). Inflation, interest rates and exchange rates were used as control variables. Descriptive analysis design was applied by the study and data analyzed on monthly basis. The study found that diaspora remittance has strong and significant positive effect on stock market performance. Increase in diaspora remittance will significantly improve the performance of stock market. Further, the study found that inflation, lending interest rates and exchange rates have significant negative effect on stock market performance. The study recommends the government to create conducive environment that encourage the diaspora population to invest more in Kenya.