Theses and Dissertations
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Item Relationship between macroeconomic factors and the stock market development in Kenya(KCA University, 2025) Karanja, Grace N.Stock markets constitute an essential component of modern economic systems, serving as mechanisms for capital allocation, savings mobilization, and the promotion of economic development. They offer corporations a structured avenue to raise capital for expansion, enhance market liquidity, facilitate price discovery, and contribute to both the creation and distribution of wealth. In Kenya, the interplay between macroeconomic indicators and stock market development warrants comprehensive investigation, particularly in light of the growing significance of financial markets in the country’s economic architecture. This study sought to examine the relationship between selected macroeconomic variables specifically Gross Domestic Product (GDP) growth, inflation, interest rates, and exchange rates and their influence on the development of the Kenyan stock market. The investigation was anchored in prominent theoretical models such as the Efficient Market Hypothesis (EMH), Arbitrage Pricing Theory (APT), and the Three-Factor Model. These frameworks offered foundational perspectives for interpreting the interactions between economic fundamentals and financial market performance. Using a mixed-methods approach, the study combined quantitative analysis with time series data from 2000 to 2023 on a quarterly basis. The statistical analysis was conducted using STATA 12, employing a multiple linear regression model under the ordinary least squares (OLS) methodology to identify significant relationships among the variables of interest. Primary data sources included financial disclosures from listed firms on the Nairobi Securities Exchange (NSE), macroeconomic data from the Central Bank of Kenya and the Kenya National Bureau of Statistics, as well as exchange rate information obtained from the International Monetary Fund (IMF) and the World Bank. The analytical process commenced with a descriptive statistical assessment, encompassing measures such as the mean, variance, skewness, and kurtosis. Thereafter, diagnostic tests were conducted to ensure the fulfillment of OLS assumptions, including tests for stationarity, multicollinearity, and serial correlation. To capture both short-term dynamics and long-term equilibrium relationships, the study applied advanced econometric techniques, including Vector Error Correction Model (VECM), the Johansen Cointegration Test, and Granger Causality analysis. Furthermore, the Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) were utilized to evaluate the dynamic temporal responses of the variables. The findings of the study yielded valuable insights for policymakers, investors, and financial analysts by elucidating the macroeconomic determinants of stock market performance in Kenya. The results also served to inform strategic financial decision-making, enhance risk management frameworks, and support the formulation of sound economic policies. Additionally, this study aimed to contribute to the broader academic discourse on financial market development within the context of emerging economies.Item Moderating Role of Foreign Direct Investment On The Relationship Between Macroeconomic Factors and Development Expenditure In Kenya(KCA University, 2026) Ondari, Eunice K.In Kenya, despite a projected GDP growth of 5.4% in 2025, up from 4.6% in 2024, the country faces challenges in effectively utilizing allocated development funds (KNBS, 2024). In the first half of the 2023/24 fiscal year, only 25.2% of the allocated development budget was absorbed by Ministries, Departments, and Agencies, indicating significant underutilization. This study aimed to identify trends, relationships, and potential causal effects between the variables by analyzing historical data over a period of time. The objective is to explore how fluctuations in interest rates, inflation, and exchange rates influence government development expenditure and the moderating role that FDI plays in this dynamic relationship. The development expenditure was measured in terms of government spending on infrastructure, education, healthcare, and other long-term development projects. The study was be guided by theories such as the Wagner's Law of Increasing State Activity, Keynesian Theory of Government Expenditure and Fiscal Illusion Theory, which examines how FDI impacts economic growth and development, and the Keynesian Theory, which highlights the importance of government expenditure in responding to macroeconomic challenges. The research adopted an exploratory study design where time series analysis was conducted to explain the significance of the relationship between the independent variables of the study on the dependent variables. The study concludes that interest rates have a negative and significant effect on development expenditure in Kenya. In addition, the study concludes that exchange rate fluctuations have a negative and significant effect on development expenditure in Kenya. Further, the study concludes that inflation rates have a negative and significant effect on development expenditure in Kenya. The study also concludes that Foreign Direct Investment has a negative and significant effect on the relationship between macroeconomic factors (interest rate, exchange rate, and inflation rate) and development expenditure in Kenya. Based on the findings the study the government of Kenya should strengthen inflation control measures through prudent fiscal discipline and effective monetary policies, so as to safeguard development expenditure. High inflation erodes the real value of allocated funds, leading to escalating project costs and delays in implementation. The study also recommends that that the government of Kenya should create a more stable and investor-friendly macroeconomic environment that aligns Foreign Direct Investment (FDI) with national development priorities.Item Effect of macroeconomic variables on the stock price index of listed commercial banks in the Nairobi securities exchange(Kca University, 2016) Kyangavo, Philip W.This study investigated the effect of macroeconomic variables namely real gross domestic product, real interest rate and exchange rate on the stock price index of listed commercial banks in the Nairobi securities exchange for the period between January 2000 and December 2013 on quarterly time series data. The results were reported using the Johansen cointegration test, vector error correction model (VECM) and causality test, which were reported using outputs from E views. The general objective of the study was to analyze the effects of macroeconomic variables on the stock price index of listed commercial banks in the Nairobi securities exchange. The study found both short run and long run relationship between stock price index and two explanatory variables, real interest rates and exchange rates but no relationship was found to exist between the explained variable and real gross domestic product. The cointegration results established that stock price index had a significant and positive long run relationship with real interest rates and exchange rates. The study further found a negative but insignificant long run relationship between the dependent variable and real gross domestic product. VECM results established that stock price index had short run relationship with real interest rates and exchange rates. Real gross domestic product was found to have no short run relationship. In determination of existence or otherwise of causal relationship, Granger causality tests were performed and the results established that there was no causal relationship between stock price index and real gross domestic product however a bidirectional causal relationship real gross domestic product and exchange rate was established. The results further found a unidirectional causal relationships one running from stock price index to real interest rate and another running from stock price index to exchange rate. From the study findings it was concluded that it is possible to predict the current and the future stock price index values of listed commercial banks in the Nairobi securities exchange by studying the past values of real interest rates and exchange rates. The study further concluded that studying real gross domestic product past values does not help in predicting the present and the future values of stock price index of listed commercial banks in Kenya.