Macroeconomic Determinants of Stock Market Development in Emerging Markets: Evidence from Kenya

Abstract

We examine macro-economic determinants of stock market development in Kenya for the period 2000 to 2009, using quarterly secondary data. The hypothesis on the existence of a co-integrated relationship between stock market development and macro-economic determinants is tested using Johansen-Julius co-integration technique. While an error correction model is used in estimating the relationship between macroeconomic variables, on the one hand, and stock market development on the other. The results indicate that macro-economic factors such as income level, banking sector development and stock market liquidity are important determinants of the development of the Nairobi Stock market. The results also show that macro-economic stability is not a significant predictor of the development of the securities market.

Keywords: Stock market, macroeconomic factors, Kenya