Macroeconomic factors and stock market performance in Kenya

Abstract

Stock market performance is generally considered to be the reflector of financial and economic conditions of a country. There are a number of macroeconomic and sector related factors that potentially can affect the stock market performance of companies or industries. The study examined the influence of macroeconomic environment on the stock market Performance at the NSE. The study was guided by the following research objectives which include; finding out the effect of exchange rate, Interest rates, inflation and Money supply on stock market performance in Kenya and to investigate if the different sectors are affecting differently by changes in the macroeconomic variables in Kenya. The study adopted a causal research design and targeted all the companies listed and active at the NSE from January 2004 to November 2014. Time Series Regression model was used to examine the effect of the macroeconomic environment on the stock market Performance at the NSE. The study found that Exchange rate had a positive influence on the stock market performance in Agricultural, Banking, Energy and Automobile sectors and a negative influence on Construction, Insurance, Investment and Manufacturing sectors. Inflation had a positive influence on the stock market Performance in investment sector and a negative influence on all the other sectors. Interest rate had a positive influence on the stock market Performance in Agricultural, Banking, Commercial, Construction, Energy, Insurance and Automobile sectors and a negative influence on Investment and Manufacturing sectors. The study also found that Money supply had a negative influence on the stock market Performance in the Automobile sectors while having a positive influence on the stock market Performance in all the other sectors. The findings showed that the type of sector characteristics had a moderating effect on the relationship between macroeconomic variables of exchange rate, Interest rate, Inflation, Money supply and the stock market Performance at the NSE.