Moderating Effect of Capital Inflows on the Relationship Between Systematic Risks and Stock Market Return Volatility Among Firms Listed at the Nairobi Securities Exchange, Kenya
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Date
2026-02
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Stratford Peer Reviewed Journals and Book Publishing
Abstract
The study assessed the moderating effects of capital inflows on the relationship between systematic
risks and stock market return volatility among firms listed at the NSE, Kenya. Volatility in the stock
market in Kenya has been on the rise in the recent years. Capital inflows can impact stock market
volatility by affecting overall market liquidity and investor sentiment. Sudden changes in capital flows,
such as large-scale foreign selling or buying, can exacerbate market volatility as prices adjust to
accommodate the influx or outflow of funds. Empirical studies found conflicting findings and displayed
research gaps that this study sought to fill. The study was anchored on positivism philosophy and
correlational research design. The target population was all 62 NSE listed firms listed between 2014
and 2024. Secondary data was collected from NSE, KNBS, CMA and world bank reports using data
collection sheet. The data was analyzed through descriptive statistics and multiple regression. The study
found that individual interaction terms were insignificant, including inflation (β = -0.0172, p = 0.428),
exchange rate (β = 0.0368, p = 0.306), and interest rate (β = -0.0215, p = 0.389). Hence, capital inflows
had no significant moderating effect on the relationship between systematic risks and stock market
return volatility. The study concludes that capital inflows have no significant moderating effect on the
relationship between systematic risks and stock market return volatility of firms listed at the NSE
Kenya. The study recommends that regulatory bodies such as the CMA and CBK develop policies that
encourage productive and long-term capital inflows. The CMA and CBK should establish early warning
mechanisms that monitor capital flow volatility and its potential spillover effects on equity market
stability. Market regulators should also enhance investor education initiatives so that market participants
are better equipped to respond rationally to changes in capital flow patterns, thereby reducing sentimentdriven volatility in the Kenyan stock market
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Research Article
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Citation
Kinuthia, D. N., Warui, F., & Mithi, F. (2026). Moderating Effect of Capital Inflows on the Relationship Between Systematic Risks and Stock Market Return Volatility Among Firms Listed at the Nairobi Securities Exchange, Kenya. Journal of Finance and Accounting, 10 (2), 1-11. https://doi.org/10.53819/81018102t5415