THE EFFECTS OF MACROECONOMIC VARIABLES ON THE MARKET CAPITALISATION OF LISTED COMPANIES IN KENYA

Abstract

Purpose: This study aims to find out the effects of macroeconomic variables on market capitalization in Kenya.Methodology:The study adopted a descriptive research design. The target population was all the employees of Nairobi Securities Exchange. The study used a purposive sampling method to access data from the population of study. A random sampling technique was used to select a sample size of 96 respondents. Secondary data on these variables ranging from 1980 to 2014 was analysed using inferential statistics. Time series analysis and regression model were employed in the analysis.Results:The findings of study indicated that exchange rates had a positive and significant effect on market capitalisation of listed companies, the findings also shows that exchange rates had a fluctuating pattern during the period of study. Further the findings showed that interest rates and public debt had a negative significant effect on market capitalisation. An increase in domestic interest rates had corresponding negative impact on capital market. Further the findings showed that inflation rates had a negative effect on market capitalisation but the effect was less significant compared to interest rates, exchange rates and public debt. These findings do not primarily conclude that inflation rates, interest rates, exchange rates and public debt are the chief determinants of market capitalisation since market capitalisation is also affected by other variables not included in this study.Policy recommendation: The study therefore recommends that the Securities and Exchange Commission of Kenya should consider the trends in the variables under the study in policy formulation to ensure the development of a modern and efficient capital market sector based on sound policies that provide momentum for high and steady capital market.