Effect of Selected Macroeconomic Variables on Performance of Securities Exchanges in the East African Community

Abstract

Abstract

Purpose - The goal of this paper was to investigate the impact of selected macroeconomic factors on the performance of securities exchanges in East African Community.

Methodology - Descriptive research design was embraced as study involves inspiring conclusions. This study relied on secondary data. The period of the study was from 2013 to 2017

Findings - This research found out that the coefficient of GDP was 0.001 meaning that GDP positively influences market capitalization. Inflation rate positively affects the market capitalization, this is clear from the coefficient value of 0.235. Money supply impacts negatively on market capitalization since its coefficient was-0.004. Interest rates influences market capitalization positively since the value of coefficient was 0.129. Exchange rates influences market capitalization negatively since the value of coefficient was -0.338. In general, macroeconomic variables affect the performance of securities exchanges in East Africa Community.

The five independent variables analyzed were able to explain their effect on the market capitalization up to 48.9% as shown by adjusted R square. This implies that they input 48.9% on the market capitalization with the rest contributed by the factors not studied. The model was fit.

Implications - Little attention has been paid to understanding the impacts of macro-economic factors on performance of securities exchanges. Understanding such effects is central to the resourceful working of the financial system in totality and for overall economic performance. The study recommends that policy makers should formulate policies geared towards stabilizing inflation, exchange and interest rates which will in turn promote foreign trade in the region

Value - This study is of pronounced significance to researchers, academicians, companies and policy makers as it gives important insights on how the macroeconomic variables affect the performance of the stock exchanges. It acts as a basis for making investment decisions by investors and policy makers can design appropriate stabilization policies in the stock markets.

¹MSc. Finance, Corporate & Treasury Analyst, KCB Bank, eric.kimanzi@yahoo.com

²Lecturer University of Nairobi, School of Business, Department of Finance and Accounting and a Certified Investment and Financial Analyst (CIFA), duncan.elly@uonbi.ac.ke