Abstract: Over the years, Nairobi Securities Exchange has experienced significant variations in stock price movements which have greatly impacted on the stock exchange performance. This research paper intends to investigate the effect of macroeconomic indicators on Nairobi Securities Exchange Performance. To realise this, a few specific objectives were used to guide this study which were i) to determine the effect of inflation on NSE performance; ii) to examine the effect of interest rate NSE performance; iii) to assess the effect of money supply changes on NSE performance; and iv) to establish the effect of foreign exchange rate movements on NSE performance. The data analysed corresponded to time series secondary data collected in the period from October 1998 until October 2017.The study adopted a casual research design and targeted the NSE 20 share index from October 1998 to October 2017. The Auto-Regressive Distributed Lag (ARDL) model was used to determine the effect of the macroeconomic indicators on NSE performance. The results from the ARDL Long Run Form and Bound test found that the macroeconomic indicators exhibited only a short run relationship with NSE performance with no indication of a long run relationship with NSE performance. These findings led to the conclusion that presence of short run shocks in the macroeconomic indicators, which affect movement in the individual series, did not converge over time. Hence there existed only a short run relationship with no significant long relationship between NSE performance and the macroeconomic indicators. In view of this, macroeconomic policy frameworks should be reviewed by policy makers with the expectation that, as the capital markets evolve, the depth created in the financial market will have a significant impact on the NSE performance in the long run. This will enable policy makers to measure the relevance of the policies they implement as well as enkindle the desire to come up with other financial products and strategies that would increase the depth and vibrancy of the financial markets.
Keywords: Macroeconomic Indicators, Nairobi Securities Exchange, Auto-Regressive Distributed Lag (ARDL).
Title: EFFECT OF MACROECONOMIC INDICATORS ON NAIROBI SECURITIES EXCHANGE PERFORMANCE
Author: MARTIN MUHIU GITHINJI, DR. J. OBWOGI
International Journal of Social Science and Humanities Research
ISSN 2348-3156 (Print), ISSN 2348-3164 (online)
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