Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya

Mohammed Mustapha Wasseja; Elizabeth Njoroge; Samwel N. Mwenda

doi:doi:10.11648/j.ijber.20150403.13

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Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya

Mohammed Mustapha Wasseja, Elizabeth Njoroge, Samwel N. Mwenda

Published in International Journal of Business and Economics Research (Volume 4, Issue 3)

Received: 10 April 2015 Accepted: 16 April 2015 Published: 30 April 2015

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Abstract

The aim of this paper was to analyze the causal relationship between macroeconomic variables and stock prices in the VAR(Vector Autoregressive) modeling framework using secondary time series annual data from 1980 to 2012. Sim's causality test based on Granger definition of causality was used to test the causality relationship while OLS (Ordinary Least Squares) is used to test for any significant relationship. According to Granger causality test results, it is evident that movement in the macroeconomic variables had no significant effect on stock prices except for inflation rate; exchange rate and change in stock prices also seem to be an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. Also, the regression test result shows that all the macroeconomic variables are jointly significant in explaining the variations in stock prices. Hence, the findings imply that the causality between macroeconomic variables and stock prices runs unilaterally or entirely in one direction from inflation rate and exchange rate to stock prices and from stock prices to market interest rates. Thus, there is evidence to show that inflation rate and exchange rate are the cause of movement on stock prices and stock prices are the cause of movement of interest rates in Kenya.

Published in	International Journal of Business and Economics Research (Volume 4, Issue 3)
DOI	10.11648/j.ijber.20150403.13
Page(s)	98-108
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Granger Causality, Stock Prices, Vector Autoregressive

References

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[8]	Kisaka, S. &. The Causal Relationship between Exchange Rates and Stock Prices in Kenya. Journal of Finance and Accounting , 3.
[9]	Kovačić, Z. J. Forecasting Volatility: Evidence from the Macedonian Stock Exchange. International Research Journal of Finance and Economics (18 (2008)), ISSN 1450-2887.
[10]	Maghyereh, A. I. (2002). Causal Relations Among Stock Prices and Macroeconomic Variables in the Small, Open Economy of Jordan.
[11]	Malkiel, B. (1999). A Random Walk Down Wall Street. New York: Norton & Co.
[12]	Muthike S.W & Sakwa, M. M. (2011). Can Macroeconomic Indicators be used as Predictors of the Stock Exchange Index Trends? A Look at the Nairobi Stock Exchange. Nairobi: Jomo Kenyatta University of Agriculture and Technology.
[13]	Ochieng D. E. & Oriwo, A. E. (2012). The Relationship Between Macroeconomic Variables And Stock Market Performance In Kenya (Vol. 1). DBA Africa Management Review 2012.
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[18]	Vuyyuri, S. (2005). Relationship between Real and Financial Variables in India: A Cointegration Analysis.

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APA Style

Mohammed Mustapha Wasseja, Elizabeth Njoroge, Samwel N. Mwenda. (2015). Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya. International Journal of Business and Economics Research, 4(3), 98-108. https://doi.org/10.11648/j.ijber.20150403.13

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ACS Style

Mohammed Mustapha Wasseja; Elizabeth Njoroge; Samwel N. Mwenda. Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya. Int. J. Bus. Econ. Res. 2015, 4(3), 98-108. doi: 10.11648/j.ijber.20150403.13

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AMA Style

Mohammed Mustapha Wasseja, Elizabeth Njoroge, Samwel N. Mwenda. Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya. Int J Bus Econ Res. 2015;4(3):98-108. doi: 10.11648/j.ijber.20150403.13

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@article{10.11648/j.ijber.20150403.13,
  author = {Mohammed Mustapha Wasseja and Elizabeth Njoroge and Samwel N. Mwenda},
  title = {Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya},
  journal = {International Journal of Business and Economics Research},
  volume = {4},
  number = {3},
  pages = {98-108},
  doi = {10.11648/j.ijber.20150403.13},
  url = {https://doi.org/10.11648/j.ijber.20150403.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20150403.13},
  abstract = {The aim of this paper was to analyze the causal relationship between macroeconomic variables and stock prices in the VAR(Vector Autoregressive) modeling framework using secondary time series annual data from 1980 to 2012. Sim's causality test based on Granger definition of causality was used to test the causality relationship while OLS (Ordinary Least Squares) is used to test for any significant relationship. According to Granger causality test results, it is evident that movement in the macroeconomic variables had no significant effect on stock prices except for inflation rate; exchange rate and change in stock prices also seem to be an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. Also, the regression test result shows that all the macroeconomic variables are jointly significant in explaining the variations in stock prices. Hence, the findings imply that the causality between macroeconomic variables and stock prices runs unilaterally or entirely in one direction from inflation rate and exchange rate to stock prices and from stock prices to market interest rates. Thus, there is evidence to show that inflation rate and exchange rate are the cause of movement on stock prices and stock prices are the cause of movement of interest rates in Kenya.},
 year = {2015}
}

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TY  - JOUR
T1  - Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya
AU  - Mohammed Mustapha Wasseja
AU  - Elizabeth Njoroge
AU  - Samwel N. Mwenda
Y1  - 2015/04/30
PY  - 2015
N1  - https://doi.org/10.11648/j.ijber.20150403.13
DO  - 10.11648/j.ijber.20150403.13
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 98
EP  - 108
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20150403.13
AB  - The aim of this paper was to analyze the causal relationship between macroeconomic variables and stock prices in the VAR(Vector Autoregressive) modeling framework using secondary time series annual data from 1980 to 2012. Sim's causality test based on Granger definition of causality was used to test the causality relationship while OLS (Ordinary Least Squares) is used to test for any significant relationship. According to Granger causality test results, it is evident that movement in the macroeconomic variables had no significant effect on stock prices except for inflation rate; exchange rate and change in stock prices also seem to be an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. Also, the regression test result shows that all the macroeconomic variables are jointly significant in explaining the variations in stock prices. Hence, the findings imply that the causality between macroeconomic variables and stock prices runs unilaterally or entirely in one direction from inflation rate and exchange rate to stock prices and from stock prices to market interest rates. Thus, there is evidence to show that inflation rate and exchange rate are the cause of movement on stock prices and stock prices are the cause of movement of interest rates in Kenya.
VL  - 4
IS  - 3
ER  -

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Author Information

Mohammed Mustapha Wasseja

Department of Business Administration, Chuka University,Chuka, Kenya
Elizabeth Njoroge

Department of Business Administration, Chuka University,Chuka, Kenya
Samwel N. Mwenda

ICT Department, Kenya National Bureau of Statistics, Nairobi ,Kenya

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Plain Text BibTeX RIS

APA Style

Mohammed Mustapha Wasseja, Elizabeth Njoroge, Samwel N. Mwenda. (2015). Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya. International Journal of Business and Economics Research, 4(3), 98-108. https://doi.org/10.11648/j.ijber.20150403.13

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ACS Style

Mohammed Mustapha Wasseja; Elizabeth Njoroge; Samwel N. Mwenda. Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya. Int. J. Bus. Econ. Res. 2015, 4(3), 98-108. doi: 10.11648/j.ijber.20150403.13

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AMA Style

Mohammed Mustapha Wasseja, Elizabeth Njoroge, Samwel N. Mwenda. Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya. Int J Bus Econ Res. 2015;4(3):98-108. doi: 10.11648/j.ijber.20150403.13

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@article{10.11648/j.ijber.20150403.13,
  author = {Mohammed Mustapha Wasseja and Elizabeth Njoroge and Samwel N. Mwenda},
  title = {Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya},
  journal = {International Journal of Business and Economics Research},
  volume = {4},
  number = {3},
  pages = {98-108},
  doi = {10.11648/j.ijber.20150403.13},
  url = {https://doi.org/10.11648/j.ijber.20150403.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20150403.13},
  abstract = {The aim of this paper was to analyze the causal relationship between macroeconomic variables and stock prices in the VAR(Vector Autoregressive) modeling framework using secondary time series annual data from 1980 to 2012. Sim's causality test based on Granger definition of causality was used to test the causality relationship while OLS (Ordinary Least Squares) is used to test for any significant relationship. According to Granger causality test results, it is evident that movement in the macroeconomic variables had no significant effect on stock prices except for inflation rate; exchange rate and change in stock prices also seem to be an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. Also, the regression test result shows that all the macroeconomic variables are jointly significant in explaining the variations in stock prices. Hence, the findings imply that the causality between macroeconomic variables and stock prices runs unilaterally or entirely in one direction from inflation rate and exchange rate to stock prices and from stock prices to market interest rates. Thus, there is evidence to show that inflation rate and exchange rate are the cause of movement on stock prices and stock prices are the cause of movement of interest rates in Kenya.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Investigation of the Granger Causal Relationship Between Macroeconomic Variables and Stock Prices in Kenya
AU  - Mohammed Mustapha Wasseja
AU  - Elizabeth Njoroge
AU  - Samwel N. Mwenda
Y1  - 2015/04/30
PY  - 2015
N1  - https://doi.org/10.11648/j.ijber.20150403.13
DO  - 10.11648/j.ijber.20150403.13
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 98
EP  - 108
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20150403.13
AB  - The aim of this paper was to analyze the causal relationship between macroeconomic variables and stock prices in the VAR(Vector Autoregressive) modeling framework using secondary time series annual data from 1980 to 2012. Sim's causality test based on Granger definition of causality was used to test the causality relationship while OLS (Ordinary Least Squares) is used to test for any significant relationship. According to Granger causality test results, it is evident that movement in the macroeconomic variables had no significant effect on stock prices except for inflation rate; exchange rate and change in stock prices also seem to be an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. Also, the regression test result shows that all the macroeconomic variables are jointly significant in explaining the variations in stock prices. Hence, the findings imply that the causality between macroeconomic variables and stock prices runs unilaterally or entirely in one direction from inflation rate and exchange rate to stock prices and from stock prices to market interest rates. Thus, there is evidence to show that inflation rate and exchange rate are the cause of movement on stock prices and stock prices are the cause of movement of interest rates in Kenya.
VL  - 4
IS  - 3
ER  -

Copy | Download