Diaspora Remittances and Stock Market Development at Nairobi Securities Exchange, Kenya

Abstract

Diaspora remittances, unlike other external sources of financing, tend to be more stable making remittances a reliable source of financing for emerging economies. Despite the consistent upward trend in diaspora remittances, emerging capital markets are typically characterized by a small number of listing and very high volatility. This study therefore sought to establish the effect of diaspora remittances on stock market development at the Nairobi Securities Exchange, Kenya. The study covered the period 2008-2018 and quarterly time series data was analysed using correlation analysis and the Autoregressive Distributed Lag Model. The study findings document a significant positive effect of diaspora remittances on stock market development in the short run as evidenced by the negative and significant coefficient of the Error Correction Term (ECT). Equally, diaspora remittances had a significant positive effect on stock market development in the long run. In view of the foregoing findings, the study recommends that the Kenya government should create a department of economic relations located at all Kenyan foreign embassies abroad to educate Kenyans abroad on the available investment opportunities at the Nairobi Securities Exchange and the importance of investing back at home.

Keywords: Diaspora Remittances, Political Risk, Foreign Investor Participation, Stock Market Development and Nairobi Securities Exchange (NSE).

DOI: 10.7176/RJFA/11-6-12

Publication date:March 31^st 2020