The Relationship Between Foreign Inflows And Stock Market Performance In Kenya
Butali, Ida N
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The paper sought to investigate the relationship between foreign inflows and the performance of the stock market in Kenya over a 6-year monthly period from 2013 to 2018. The population of the study was the market capitalization for the Nairobi Securities Exchange for the period under study. In order to achieve the purpose of the study secondary data from all stocks that traded consistently from January 2013 to December 2018 was employed. Secondary data was collected from the Nairobi Securities Exchange, the World Bank website and the Capital Markets Authority website. The aim of this study was to examine empirically whether there exists a nexus connecting foreign inflows and the stock market performance of the Nairobi Security Exchange by use of the analytical tool STATA. Data stationarity was determined using ADF, and co-integration tests was conducted. An analysis of the cause and effect relationship between the variables was determined through the Granger causality test. The research conducted an analysis of the stocks market through market capitalization against the foreign inflows. The general objective was to determine the relationship between foreign inflows and stock market performance. The study found both short run and long run relationships between the stock market performance and two explanatory variables but no relationship between the explained variable and FDI. The results found that there was significant and negative relationship foreign debt and remittance. The study also established a positive but insignificant relationship between the dependent variable and foreign direct investments. Causality tests established that none of the variables granger-cause the dependent variable. The study recommended that the government monitors the foreign inflows as they have a negative relationship with the performance of the stock market.