The Global Financial Crisis, Inflation Rate and Stock Market Returns in Kenya
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Date
2017
Authors
Otieno, Donald A.
Ngugi, Rose W.
Wawire, Nelson H. W.
Journal Title
Journal ISSN
Volume Title
Publisher
European Scientific Journal
Abstract
The moderating effect of events such as the 2008 Global Financial
Crisis (GFC) on the relation between stock market returns and
macroeconomic variables has attracted very little attention. This study
investigates the extent to which the 2008 GFC moderated the relationship
between inflation rate and stock market returns. The study uses month-onmonth inflation rate and year-on-year inflation rate from 1st January 1993 to
31st December 2015 and divides the sample data into pre-crisis period (from
1st January 1993 to 31st December 2007); crisis period (from 1st January
2008 to 30th June 2009); and post-crisis period (from 1st July 2009 to 31st
December 2015). It uses a product-term regression model instead of the most
widely applied additive regression model. Results indicate that a unit
increase in the both measures of inflation rate had significant depressing
effects on stock market returns after the crisis compared to before the crisis.
Likewise, the results reveal that average stock market returns were
significantly higher after the crisis compared to before the crisis at low rather
than medium or high values of the two measures of inflation rate. These
results suggest that the Kenyan stock market is highly sensitive to variations
in inflation rate, especially as it emerges from a financial or political turmoil.
This study is empirically innovative in the sense that it is the first to examine
the moderating effect of the 2008 GFC on the relation between inflation rate
and stock market returns in Kenya using a product-term model.
Description
Article
Keywords
Stock returns, Inflation rate, GFC, Product-term models
Citation
Otieno, D. A., Ngugi, R. W., & Wawire, N. H. (2017). The global financial crisis, inflation rate and stock market returns in Kenya. European Scientific Journal, 13(19), 191-210.