Effects of Selected Macroeconomic Variables on Market Capitalization of Nairobi Securities Exchange, Kenya
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Date
2024-05
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Kenyatta University
Abstract
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.
Description
A Research Project Submitted to the School of Business, Economics and Tourism Department of Economic Theory in Partial Fulfillment of the Requirements for the Award of Master of Economics Degree, Kenyatta University. May, 2024
Supervisor.
Dr, Samuel Muthoga