MST-Department of Economic Theory

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Browsing MST-Department of Economic Theory by Author "Avonde, Anne Musinzi"

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    Effects of Selected Macroeconomic Variables on Market Capitalization of Nairobi Securities Exchange, Kenya
    (Kenyatta University, 2024-05) Avonde, Anne Musinzi
    Market capitalization is a very essential element to investors during decision-making on types of investments. It helps in knowing investments that can be considered feasible and viable in future, the value of a company, and therefore determines the returns on investments. The stock market has failed to contribute towards economic growth significantly in Kenya. Nairobi Securities Exchange has low market capitalization and a very small number of firms listed on its exchange as compared to other countries such as the Johannesburg Stock Exchange, the Nigeria Stock Exchange and the Egyptian stock market. Market capitalization in Kenya has been observed with an erratic trend. The worst loss was in 2018, of Ks. 419.75 billion, thus, unable to contribute towards the achievement of Vision 2030 medium-term-term plans two and three under capital markets of mobilizing resources to realize 23-28 percent savings as a ratio of gross domestic product. This research examined how market capitalization was affected by various macroeconomic variables in Kenya. Quarterly data from the year 2010-2022 from the Central Bank of Kenya and Capital Market Authority was used and a descriptive research design was adopted. No cointegration between market capitalization and exchange rate, money supply, interest rates, Gross domestic product, and inflation was found by use of bounds test. Autoregressive distributed lag model was used and from empirical evidence money supply and inflation had a weak influence on market capitalization. Interest rate, Gross Domestic Product and first lag of the exchange rate were positive and affected market capitalization while exchange rate at the current level affected market capitalization negatively. It was concluded that macroeconomic variables affect market capitalization. The study recommends that the government needs to put up relevant policies that increase gross domestic product. Policymakers need to consider macroeconomic variables during policy formulation on market capitalization. This will increase the market capitalization of the Nairobi Securities Exchange, Kenya.