Relationship between exchange rate and securities’ market returns: Evidence from companies listed at Nairobi securities exchange

Abstract

There are a few studies with reference to companies listed at Nairobi Securities Exchange on relationship between selected macroeconomic factors and securities’ market returns. This study seeks to investigate the relationship between selected macroeconomic factors and securities, market returns: Evidence from companies listed at Nairobi Securities Exchange. The study was guided by the following objective; to analyze the relationship between exchange rate and securities’ market returns at Nairobi securities Exchange. This study used the following Modern Portfolio Theory (MPT). The research adopted a cross sectional design. Out of the 61 firms listed at the Nairobi Securities Exchange, data for 46 firms were obtained for the entire study period. One data collection instrument called data extraction form was used in collecting data for this study. Validity on the relationship between selected macroeconomic factors and securities’ market returns at the Nairobi securities exchange was done by analysing secondary data from the Nairobi securities exchange and central bank of Kenya. Test-retest method and Parallel/Equivalent forms of the same test were used to establish reliability of measuring instrument. The findings of the study showed that interest rate plays an important role in influencing the changes or variations of the securities’ market returns in Kenya albeit the fact that the study results in some sector stock Performance indicated that interest rate has insignificant influence on the direction of the stock market performance. The study concluded that the contribution of exchange rate on the securities’ market returns in Kenya was found critical due to its significant influence on the securities’ market returns.