The Effect of Macroeconomic Factors and Political Events on the Performance of Nairobi Securities Exchange in Kenya
The Effect of Macroeconomic Factors and Political Events on the Performance of Nairobi Securities Exchange in Kenya

Summary/Abstract: Stock market plays a significant positive role in the development of the capital market. Political events and changes in macroeconomic variables have been suspected to have an effect on the trading volume and stock return. Thus, this paper focuses on analyzing how macroeconomic factors and political events affect the performance of NSE in Kenya covering the period from January 2000 to February 2019. This was performed using inflation, exchange rate, money supply, 91-Day Treasury bill, and political events represented using dummy variables. The study uses secondary data, and the sources of the data include Capital Markets Authority quarterly bulletins and the Central Bank of Kenya statistics. ARDL Error Correction model was used to estimate the extent to which macroeconomic factors and political events affect the performance of NSE in Kenya. This is because some of the variables are stationary and others are nonstationary. The results show that exchange rate, money supply, 91-Day Treasury bill, and political events were statistically significant except for inflation which is not statistically significant. Therefore, a joint effort from individuals, stakeholders, economists, investors, and government is required to secure the effectiveness of the financial market in Kenya since financial markets are dynamic. They are also affected by various macroeconomic factors and some political instability incidents over the recent past like the 2007/2008 post-election violence. The result of the study may encourage and motivate the investors and policy makers both domestically and internationally to make vital strategic decisions.

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