Investigating the Effect of Exchange Rates on Share Price Movement at the Nairobi Securities Exchange Limited

Abstract

The purpose of this study was to investigate the effect of exchange rate on the share price movement at the NSE. Four research objectives were formulated to guide the study. Causal research design was used in the study while the target population was 20 companies listed at the NSE which represented the 20 share index. The main type of data used for analysis was secondary data which was for a sample period of 10 years from January 2003 to December 2012 and included the US Dollar ($) monthly mean exchange rates and monthly NSE 20 share index. The data was analysed using Microsoft's Excel (2010) computer software. Some models were also confirmed by the use of Statistical Package for Social Sciences (SPSS) version 17. The results of study indicate a bidirectional inverse relationship between exchange rates and share prices. Pearson correlation revealed a strong significant relationship which was shown as -0.424. The coefficient of determinant (R2) was only 18% implying that there are other variables outside the models that also influenced the NSE share price movement and exchange rate volatility. This study would be useful for companies, investors and policy makers, academicians for literature review and recommendations of the study may be used for further research.