Relationship Between Financial Development Indicators And Stock Market Performance In Kenya

Abstract

The study examined the relationship between financial development indicators and stock market performance in Kenya for the duration between 2004 and 2018. The purpose of the research was to determine whether there is a significant relationship between financial development indicators (depth, accessibility and openness) and stock market performance measured by market NSE 20 share index. Quarterly secondary data was used and sampled from the Central Bank of Kenya statistical reports and Kenya national bureau of statistics. Hypotheses were devised and examined using the Vector error correction mechanism modeling. The study concluded that financial development indicators have a significant impact on the stock market performance which is a key driver of economic growth in Kenya. Recommendations were made to promote and encourage stock market performance. The Central Bank of Kenya needs to adopt an expansionary monetary policy to increase money supply in the economy by reducing the level of real interest rates. There is need for the Capital Market Authority to encourage locals to venture in stock market. This can be done through educating investors and awareness campaigns. Local investors’ participation will foster stock liquidity and increase confidence to the stock market.