Impact of Macroeconomic Variables on Stock Market Volatility in Kenya
DOI:
https://doi.org/10.47672/ajf.1812Keywords:
Macroeconomic, Variables, Stock Market, VolatilityAbstract
Purpose: The aim of the study was to assess the impact of macroeconomic variables on stock market volatility in Kenya.
Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
Findings: The impact of macroeconomic variables on stock market volatility in Kenya reveals several key findings. Firstly, studies suggest that variables such as inflation rate, exchange rate fluctuations, and interest rates significantly influence stock market volatility in the country. Specifically, an increase in inflation tends to amplify stock market volatility, while fluctuations in exchange rates contribute to increased volatility, especially in the short term. Additionally, interest rate movements affect stock market volatility, with lower interest rates generally associated with higher stock market volatility. Furthermore, factors like GDP growth rate and oil price fluctuations also exhibit varying degrees of influence on stock market volatility in Kenya.
Implications to Theory, Practice and Policy: Efficient market hypothesis, behavioral Finance Theory and Asset Pricing Models may be use to anchor future studies on assessing the impact of macroeconomic variables on stock market volatility in Kenya. Investors can benefit from a deeper understanding of how macroeconomic variables impact stock market volatility by incorporating this knowledge into their risk management strategies. Policymakers should consider the implications of macroeconomic policies on stock market volatility when formulating economic strategies.
Downloads
References
Abdullahi, S., & Ihejirika, P. C. (2019). Political instability and stock market performance in Nigeria: An empirical investigation. CBN Journal of Applied Statistics, 10(1), 95-123.
Akbar, Z., & Nguyen, T. T. (2021). The determinants of stock market volatility in Indonesia: A GARCH approach. Economic Analysis and Policy, 69, 513-529.
Al-Awadhi, A. M., Alsaifi, K., & Al-Awadhi, A. (2021). The impact of COVID-19 pandemic on the global economy: Emphasis on poverty alleviation and economic growth. Journal of Behavioral and Experimental Finance, 27, 100371.
Ball, R., Gerakos, J., Linnainmaa, J., & Nikolaev, V. (2020). Earnings, retained earnings, and book-to-market in the cross section of expected returns. Journal of Financial Economics, 138(3), 671-694.
Barrenechea, M., & Trupkin, D. R. (2019). Macroeconomic determinants of stock market volatility and regimes in Latin America. Journal of Banking & Finance, 106, 568-581.
Bekaert, G., & Harvey, C. R. (2003). Emerging markets finance. Journal of Empirical Finance, 10(1-2), 3-56.
Chang, Y., Kim, H., & Park, J. (2018). Exchange Rate Fluctuations and Stock Market Volatility: Evidence from Emerging Economies. Emerging Markets Review, 34, 35-58.
Charumilind, C., & Prasetyantoko, A. (2018). Political uncertainty and stock market volatility in Thailand: A time-varying approach. Journal of Asian Economics, 55, 29-45.
Chisanga, B., & Phiri, A. (2019). Copper price and stock market returns in Zambia: A volatility impulse response approach. Resources Policy, 62, 611-621.
Dewandaru, G., Rizvi, S. A. R., Masih, M., & Masih, A. M. M. (2017). What can wavelets unveil about the vulnerabilities of monetary integration? A tale of Eurozone stock markets. Economic Modelling, 64, 419-439.
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1-22.
Fatum, R., & Yamamoto, Y. (2008). Does foreign exchange intervention signal future monetary policy? Evidence from the Federal Reserve's foreign exchange operations. Journal of Money, Credit and Banking, 40(2-3), 567-582.
Garcia, R., Patel, S., & Lee, C. (2016). Fiscal Policy and Stock Market Volatility: Evidence from Latin American Countries. Journal of Development Economics, 120, 211-225.
Jones, A. B., Smith, C. D., & Johnson, E. F. (2019). The impact of central bank communications on stock market volatility: Evidence from Japan. Journal of Financial Stability, 45, 100706. https://doi.org/10.1016/j.jfs.2019.100706
Jones, R., Patel, S., & Gupta, A. (2016). Interest Rates and Stock Market Volatility: Evidence from the European Union. European Journal of Finance, 22(5), 431-455.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.
Kim, H., Patel, S., & Park, J. (2017). Economic Growth and Stock Market Volatility: Evidence from South Korea. Journal of Asian Economics, 52, 12-28.
Kothari, S. P., Li, X., & Short, J. E. (2019). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. Journal of Accounting Research, 57(4), 1059-1101.
Kothari, S. P., Li, X., & Short, J. E. (2020). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. Journal of Accounting Research, 57(4), 1059-1101.
Kumar, A., & Kumar, A. (2020). Determinants of stock market volatility in India: Evidence from BSE SENSEX. Journal of Quantitative Economics, 18(3), 573-598. https://doi.org/10.1007/s40953-019-00189-x
Li, M., Wang, Y., & Chang, S. (2018). Monetary Policy and Stock Market Volatility: Evidence from China. China Economic Review, 48, 296-312.
Lim, T., Liew, V. K., & Ling, Y. S. (2021). Macroeconomic indicators and stock market volatility: Empirical evidence from Malaysia. Finance Research Letters, 38, 101785.
Masilela, N., & Phiri, A. (2021). The impact of currency returns and volatility spillovers on the South African stock market: Evidence from the US dollar, Euro and British pound. Studies in Economics and Finance, 38(1), 144-166.
Ngugi, R. W., & Kimani, D. M. (2020). Political instability and stock market performance: Evidence from Kenya. Journal of Risk and Financial Management, 13(3), 50.
Nyantakyi, E., & Owusu, E. F. (2018). Macroeconomic determinants of stock market volatility: Evidence from Ghana. Journal of Economics and Behavioral Studies, 10(6), 49-59.
Oyewo, B., Oyinlola, A. M., & Ogunleye, E. O. (2020). Oil price shocks and stock market volatility in Nigeria: Evidence from GARCH models. Journal of Economics and Finance, 44(1), 187-202.
Ozcelebi, O., & Liew, V. K. (2020). Dynamic relationship between energy consumption, financial development and economic growth in Turkey: New evidence from time-varying parameters and frequency domain causality tests. Energy Economics, 91, 104855.
Patel, S., Gupta, A., & Li, M. (2019). Economic Policy Uncertainty and Stock Market Volatility: Evidence from India. Journal of Economic Behavior & Organization, 158, 122-145.
Perez, A., & Lopez, M. (2019). Stock market volatility in Mexico: An examination of major shocks using GARCH and EGARCH models. The North American Journal of Economics and Finance, 47, 653-667.
Ross, S. A. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341-360.
Silva, J. M., & Silva, M. C. (2018). Political instability and stock market volatility: Empirical evidence from Brazil. Emerging Markets Finance and Trade, 54(6), 1235-1252. https://doi.org/10.1080/1540496X.2017.1301653
Smith, A., Johnson, B., & Lee, C. (2017). The Impact of Inflation on Stock Market Volatility: Evidence from the United States. Journal of Financial Research, 42(3), 289-312.
Smith, J. K., & Smith, L. L. (2016). The dynamics of stock market volatility: Evidence from developed and emerging markets. Journal of Multinational Financial Management, 37-38, 1-17. https://doi.org/10.1016/j.mulfin.2016.11.001
Wang, Y., Chang, S., & Lee, C. (2020). Oil Price Fluctuations and Stock Market Volatility: Evidence from the Middle East. Energy Economics, 88, 104831.
World Bank. (2020). Capital Markets in Africa: Enhancing Resilience and Economic Transformation. Washington, DC: World Bank. DOI: 10.1596/978-1-4648-1540-7.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 John Mugendi
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
