Dynamic Linkages of Stock Market Sectors: Evidence from the Kenyan Stock Market

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dc.contributor.authorSimiyu, Eddie
dc.contributor.authorKorir, Julius
dc.contributor.authorLaiboni, Gabriel
dc.date.accessioned2020-08-12T14:08:13Z
dc.date.available2020-08-12T14:08:13Z
dc.date.issued2020
dc.descriptionA research article published in Journal of Finance and Economicsen_US
dc.description.abstractThis paper undertakes an empirical investigation into the dynamic linkages of the Nairobi Securities Exchange’s sectors. Using weekly indices for the 9th June 2008 to 14th February 2019 period, it examines the dynamic linkages of the Investment, Manufacturing and Allied, and Banking sectors. The study finds out the presence of one cointegrating relationship in the long run. A Vector Error Correction Model is fitted to estimate the temporal relationships of the three indexes. Results of Granger Causality testing, which are based on the VECM output, indicate the presence of bidirectional granger causality between the Manufacturing and Allied & Banking sectors as well as the Banking & Investment sectors. However, there is no granger causality between the Investment & Manufacturing and Allied sectors. Impulse response analysis show that shocks to the Manufacturing and Allied Sector are least significant in terms of their ability to invoke responses from other sectors, while shocks to the Banking sector are most influential as far are the tendency of elevating the volatility of other sectors’ indexes is concerned. Forecast Error Variance Decomposition (FEVD) analysis further indicate that shocks to the banking sector are most influential in terms of their explanatory power of other sectors’ forecast variances. The study therefore concludes that the banking sector has the highest tendency to influence other sectors’ volatility, while the Manufacturing and Allied Sector is least significant in terms of its ability to influence other sectors’ volatility. Therefore, it is recommended that that stocks that are listed under the Manufacturing and Allied Sector should be considered for diversification purposes due to the low scale of linkages that this sector has with other sectors. But, better still; investors should seek inter-market diversification opportunities in order to tap fully into the benefits of portfolio diversification.en_US
dc.identifier.citationEddie Simiyu, Julius Korir, and Gabriel Laiboni, “Dynamic Linkages of Stock Market Sectors: Evidence from the Kenyan Stock Market.” Journal of Finance and Economics, vol. 8, no. 1 (2020): 33-39. doi: 10.12691/jfe-8-1-5.en_US
dc.identifier.issn2328-7276
dc.identifier.otherDOI:10.12691/jfe-8-1-5
dc.identifier.urihttp://pubs.sciepub.com/jfe/8/1/5/index.html
dc.identifier.urihttp://ir-library.ku.ac.ke/handle/123456789/20248
dc.language.isoenen_US
dc.publisherScience and Education Publishingen_US
dc.subjectdynamic linkagesen_US
dc.subjectsectoral indexesen_US
dc.subjectcointegrationen_US
dc.subjectimpulse response analysisen_US
dc.subjectforecast error variance decompositionen_US
dc.titleDynamic Linkages of Stock Market Sectors: Evidence from the Kenyan Stock Marketen_US
dc.typeArticleen_US
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