Impact of Macroeconomic Variables on Stock Market Prices in Sub-Saharan Africa
DOI:
https://doi.org/10.47941/ijf.2467Keywords:
Stock Price, Inflation Rate, Interest Rate, Exchange Rate, Money SupplyAbstract
Purpose: The study assessed macroeconomic variables' impact on Sub-Saharan Africa's stock prices. Specifically, the study examined the impact of the inflation rate, interest rate, exchange rate, and money supply on stock price.
Methodology: The study employed a causal research design to show a causal relationship between variables. Monthly data were collected from six countries, i.e Tanzania, Kenya, Malawi, Botswana, Ghana, and Nigeria, from 2005 to 2023. The collected data were analyzed through descriptive statistics and multiple regression analysis.
Findings: Findings revealed that the inflation rate and exchange rate both have statistically significant and positive effects on stock prices, with coefficients of 0.4222 (p < 0.001) and 1.3522 (p < 0.001), respectively, showing that increases in these factors are associated with higher stock prices. The coefficient for interest rate (0.0120) is not statistically significant (p = 0.133), implying no strong relationship. These results, therefore, show that inflation and the exchange rate positively and insignificantly affect stock prices, suggesting that a shock increase in either or both economic variables is positively associated with increased stock market values. This study provides a theoretical contribution by integrating Arbitrage Pricing Theory, the Efficient Market Hypothesis, Monetarist Theory, and Purchasing Power Parity to explain the intricate relationship between macroeconomic variables and stock price movements.
Unique Contribution to Theory, Policy and Practice: By drawing from these theories, it highlights how variables like money supply, inflation, interest rates, and exchange rates influence stock prices through risk sensitivities, market efficiency, and purchasing power dynamics. From this perspective, it would be prudent for policy framers to consider implications for the stock market while adopting policies relating to inflation and currency exchange. Interest rates do not strongly correlate with stock prices; it would be worth monitoring, though, as interest rate policies sometimes have broader economic impacts. Investors should, therefore, focus on inflation and exchange rate trends to make strategic investment decisions that capitalize on these significant relationships.
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