NAIROBI STOCK EXCHANGE: A REGRESSION OF FACTORS AFFECTING STOCK PRICES

Authors

  • Dr. Jane Kiboi United States International University
  • Dr. Paul Katuse United States International University

DOI:

https://doi.org/10.47941/ijf.323

Keywords:

Nairobi Stock Exchange, Interest Rates, Inflation Rates, Money Supply, Foreign Exchange Rates, Market Index

Abstract

Purpose: This paper analyzed factors influencing the market index for the Nairobi Stock Exchange (NSE), taking a time horizon between January 2008 to December 2010. We posit that money supply, inflation rates, exchange rates, and interest rates are significant covariates affecting the market index.

Methodology: The market index and the macroeconomic covariates data was obtained from the NSE and the Central Bank of Kenya. Multiple regression analysis was used to estimate the effects of the chosen factors that affect stock values, with the market index being the indicator variable for stock values.

Results: Regression analysis results revealed that the selected macroeconomic covariates - interest rates, exchange rates and inflation - significantly affect the value of stocks in the NSE. Money supply was not significant even though it had a positive correlation with the stock prices. Factor regression models described the sensitivity of an asset return as a function of one or more factors.

Contribution to policy, practice and theory: Based on our analyses, we conclude that traders should constantly review the prevailing economic conditions, based on the patterns of the determinant macroeconomic factors identified in this study, to model their investment strategies. The scope of our study being limited to NSE and four macroeconomic factors, the findings of this paper may not be directly applicable to other financial markets. We therefore suggest future research directions to extend to other financial markets and include all macroeconomic factors.

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Author Biographies

Dr. Jane Kiboi, United States International University

Postgraduate Student

Dr. Paul Katuse, United States International University

Lecturer

References

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NSE. (2011). Regulatory Framework. Retrieved August 1st , 2011, from Nairobi Stock Exchange: http://www.nse.co.ke/regulatory-framework/category/42-nairobi-stock-exchange-nse.html

Wang, L. (2010). Empirical Analysis of Macroeconomic Factors Affecting Stock Prices. Orient Academic Forum, 132-133.

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Published

2019-09-12

How to Cite

Kiboi, D. J., & Katuse, D. P. (2019). NAIROBI STOCK EXCHANGE: A REGRESSION OF FACTORS AFFECTING STOCK PRICES. International Journal of Finance, 4(1), 11–21. https://doi.org/10.47941/ijf.323

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Section

Articles