The Relationship between Economic Growth and Stock Market Performance in Kenya
Keywords:
Economic Growth, Stock Market, Performance, KenyaAbstract
The interaction between stock price movements and real economic activities has been a debated issue in majority of economic studies. In this connection, two crucial questions have become the main focus of attention. First, are stock prices or share price movements influenced by economic change or are they determined on the basis of speculative bubbles? Second, to what extent does the stock market performance as a macroeconomic indicator affect the prospects for economic growth? The purpose of this study is to establish the relationship between Economic Growth and Stock Market Performance in Kenya. The study used secondary data from the Nairobi Stock Exchange (NSE) databases on the NSE 20 share Index. Annual real Gross Domestic Product (GDP) data was also collected from Central Bank of Kenya (CBK). The NSE data and GDP data was for the period between the year 1997 and 2015. Regression of coefficients results shows that GDP and NSE performance are positively and significant related (r=363.23, p=0.001). The study concluded that GDP and NSE performance are positively and significant related. GDP would lead to increase in stock market performance. The study recommends that investors should look at the GDP performance to determine when to invest by buying or selling shares in the stock market. That is, buy shares when GDP performs poorly and sell when the GDP performs well. This would help them get value for their investments in stock market.
Keywords: Economic Growth, Stock Market, Performance, Kenya
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