Relationship Between Macro-economic Variable, Investor Herding Behavior and Stock Market Volatility in Kenya
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Date
2016-08-08
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Economics, Commerce and Management,
Abstract
This study sought to examine the relationship between interest rate, inflation, gross domestic
product (GDP), foreign exchange, investor herding behaviour and stock market volatility.
Published time series data from January 2001 to December 2014 was obtained from the Central
Bank of Kenya, Kenya National Bureau of Statistics, Capital Market Authority and the Nairobi
Securities Exchange. Granger causality test was used to determine the short run causality while
the Vector Error Correction Model (VECM) was used to test the long run causality between
predictor variables and stock market volatility. Result from the regression model show a positive
and significant relationship between inflation and stock market volatility both in the short run and
long run. The study finds that an increase in inflation by 1% leads to an increase in stock market
volatility by approximately 24%. Results also revealed that there is a negative and significant
relationship between interest rate and stock market volatility both in the short run and long run.
GDP, Foreign exchange and herding behaviour had no significant relationship with stock market
volatility in Kenya.
Description
Journal
Keywords
Stock Market Volatility, Investor Herding, Macro-Economic Variables, Herding Index
Citation
Amata, E. O., Muturi, W., & Mbewa, M. (n.d.). RELATIONSHIP BETWEEN MACRO-ECONOMIC VARIABLES, INVESTOR HERDING BEHAVIOUR AND STOCK MARKET VOLATILITY IN KENYA.