MACROECONOMIC FUNDAMENTALS ON THE FINANCIAL PERFORMANCE OF NAIROBI SECURITIES EXCHANGE
Keywords:
91 day Treasury bill rate, exchange ratesAbstract
Purpose: The purpose of this study was to evaluate macroeconomic fundamentals on the financial performance of Nairobi securities exchange.
Methodology:Descriptive research design was used to obtain information for this study.The study population consisted of 56 companies listed in the NSE as at July 2012.The study used self-developed structured and unstructured questionnaires which were administered to finance managers in the companies listed under NSE.The study used primary data on the NSE 20-share index, 91-day Treasury bill rate, inflation and exchange rateComputer application packages such as Statistical Package for Social Sciences (SPSS) was used to assist in the analysis and communication of data.
Results:The long-run model results indicated that only inflation rate was negatively and significantly related to NSE index. This implied that an increase in inflation rate led to decrease in NSE index. It was concluded that short-run interest rate, inflation rate and GDP were found to be negatively related to short run NSE index. Therefore, an increase in short run interest rate, inflation rate and GDP led to a decrease in short run NSE index. It was concluded that the error correction term LAGRESID has the expected sign and is significantly negative. This result implies that there is a negative gradual adjustment (convergence) to the long run equilibrium. The coefficient indicates that the disequilibria in short run NSE index achieved in one period are corrected in the subsequent period.
Policy recommendation: Based on the findings of the study, the study presents recommendations pertinent to the policy makers, investors, financial market regulators and future researchers. The study recommends the government through its policy makers should come up with policies that will help stabilize Foreign exchange rate, Interest rate and Inflation rate fluctuation thus creating investor confidence in the securities market. This will have a significant impact on the performance of the Nairobi Securities Exchange thus foster economic growth.
Downloads
References
Abonyo, K. (2003). Effectiveness of macroeconomic indicators in predicting performance
of the Nairobi Stock Exchange.
Adaramola, &OlugbengaA . (2011). "The Impact of Macroeconomic Indicators on
Stock Prices in Nigeria
Adjasi, C., et al. (2008). Effect of Exchange Rate Volatility on the Ghana Stock Exchange.
African Journal of Accounting, Economics, Finance and Banking,3. Retrieved on
/12/2012, from http://ssrn.com
Abugri, B.A. (2008). Empirical Relationship between Macro-economic Volatility and
Stock Returns: Evidence from Latin American markets", International Review
of Financial Analysis, 17, pp. 396-410.
Aggarwal, R., Carla, I., & Ricardo, L. (1999).Volatility in emerging stock markets.
Journal of Financial and Quantitative Analysis, 34(1), pp33−55.
Barrows, W. C., & Naka A. (1994). Use of Macroeconomic Variable to Evaluate Selected
Hospitality Stock Returns in the U.S., International Journal of Hospitality
Management, 13 (2), pp. 119-128.
Bailey, W., and Chung, Y. P (1995). Exchange rate fluctuations, political risk, and stock
returns: Some evidence from an emerging market, Journal of Financial and
Quantitative Analysis 30, pp 541-561.
Bekaert, G., & Harvey, C. R. (1997). Emerging equity market volatility.Journal of
Financial Economics, 43, 29−77.
Boudoukh, J., & Richardson, M. (1993). Stock returns and inflation: A long-horizon
perspective. American Economic Review, 83,pp 1346−1355
Benita, G., & B. Lauterbach. (2004). Policy Factors and Exchange Rate Volatility: Panel
Data Verses a Specific Country Analysis, Research Unit ,Foreign Exchange Activity
Department, Bank of Israel, Jerusalem.
Berlemann, M., Dimitrova, K. &Nenovsky, N. (2005). Assessing Market Expectations
on Exchange Rates and Inflation: A Pilot Forecasting System for Bulgaria, Journal of
Economic Literature, 43, (4), pp. 1190-1218.
Capital Market Authority, (2011). Capital Market Authority Statistical Bulletin
Chen.,Nai-Fu., Roll., Richard, and Ross, A. S. (1986). Economic Forces and the Stock
Market, Journal of Business, 59 (3), pp. 383-403.
Choi, J.J., & Prasad. A. M., (1995). "Exchange rate sensitivity and its determinants: A
firm and industry analysis of U. S. Multinationals", Financial Management, 24, pp.
- 88.
Fabozzi, F. & Modigliani, F. (1995). Capital Market Institutions and Instruments. New
Jersey: Prentice Hall, Inc
Fama, E.F., (1981). Stock returns, real activity, inflation and money, American Economic
Review", Vol. 71, pp. 545-65.
Fisher, I. (1930). The Theory of Interes. Macmillan, New York.
Gavin, M. (1989). The Stock Market and Exchange Rate Dynamics, Journal of
International Money and Finance, 8 (2), pp. 181-200
Hsing, Y., (2011). The Stock Market and Macroeconomic Variables in a BRICS Country
and Policy Implications.International Journal of Economics and Financial Issues,
(1), pp. 12-18.
Ibrahim, H., Mansor and Aziz, Hassanuddeen. (2003). Macroeconomic Variables and
the Malaysian Equity Market A View Through Rolling Subsamples.Journal of
Economic Studies, 30, pp. 6-27.
IFC, (2000).Emerging stock markets factbook. Washington DC: International Finance
Corporation.
Jefferis, K. &Okeahalam, C.C. (2000). The Impact of Economic Fundamentals on Stock
Markets in Southern Africa Development. Southern Africa, 17(1), pp. 23-51.
Kanas, A. (2000). Volatility Spillovers between Stock Returns and Exchange Rate
Changes.Journal of Business Finance and Accounting, 27, 448-468.
Kandir, Y., &Serkan, (2008). Macroeconomic Variables, Firm Characteristics and Stock
Returns: Evidence from Turkey, International Research Journal of Finance and
Economics, 16, pp. 35-45
Kenya Bureau of National statistics (2012). Economic Survey 2011 Highlights.
Leedy, P.D., &Ormrod, J. E., (2010).Practical Research: Planning and Design. Ninth
Edition. NYC: Merril
Lee, R. (1998). What Is An Exchange? The Automation, Management, and Regulation of
Financial Markets. New York: Oxford University Press Inc.
Mandelker, G., & Tendon, K. (1985). Common stock returns, real activity, money, and
inflation: Some international evidence. Journal of International finance
Mahendru. (2010). impact of macro-economic variables on stock prices in India
Ming-Chang Cheng, Zuwei-ChingTzeng& Wei-Ling Kang. (2011). The Impact of Non
Macroeconomic Events on Taiwan Electronic Industry Stock Index Returns.
Global Economy and Finance Journal, 4 (1).pp. 80-101
Maysami, C. R., Koh, &Tiong, S. (2000). A Vector Error Correction Model of the
Singapore Stock Market.International Review of Economics and Finance,9 (1),
pp. 79-96.
Ming-HuaL.,&Keshab M. S. (2008). Analysis of the long-term relationship between
macro-economic variables and the Chinese stock market using heteroscedastic
cointegration",Managerial Finance,Vol.34 Iss:11 pp.744- 755
Mishra, K. A. (2004). Stock Market and Foreign Exchange market in India: Are they
related?. South Asia Economic Journal, 5(2), pp. 209-232
Muga, D.N. (1974). The Nairobi Stock Exchange; it's History,Organization and Role in
the Kenyan Economy.Unpublished MBA Dissertation University of Nairobi
Mugenda, O., Abel G,&Mugenda. (2003). Research Methods Quantities and Qualitative
Approaches.Nairobi, Acts Press Publishers.
Mukherjee, K. Tarun and Naka, Atsuyuki. (1995). Dynamic Relations Between
Macroeconomic Variables and the Japanese Stock Market: An Application of a
Vector Error Correction Model.Journal of Financial Research, 18, pp. 223-237.
Mutoko, R. K. (2006). Analysing effect of treasury bill rates on stock market returns using
GARCH.Unpublished MBA dissertation, University of Nairobi."
Ngugi, R.W. &Kabubo, J.W. (1998). Financial sector reforms and interest rate
liberalization: the Kenya experience. African Economic Research consortium
Research (AERC) Research, 72
OlwenyT.,&Omondi K. (2011). The effect of macro-economic factors on the stock
return volatility in the Nairobi Stock Exchange, Kenya. Journal of Economics and
Finance Review vol. 1(10) pp.34-38
Pal K., &Mittal R. (2011).Impact of macroeconomic indicators on Indian capital markets.
The Journal of Risk Finance, Vol. 12 Iss: 2 pp. 84 - 97
Pass,C., Lowes, B. &Robinson,A.(1995).Business&Macroeconomics.London:Routledge.
Riley, W.B., and Luksetich, W.A. (1980). The Market Prefers Republicans: Myth or
Reality. Journal of Financial and Quantitative Analysis, 15(3): pp.541-560.
Reilly, F. K., & Brown, K.(1997). Investment Analysis & portfolio Management. Orlando:
Harcout Brace & company
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
