EFFECTS OF MACROECONOMIC VARIABLES ON STOCK MARKET PERFORMANCE IN RWANDA. CASE STUDY OF RWANDA STOCK EXCHANGE

Gatsimbazi Innocent, Jaya Shukla, Patrick Mulyungi

Abstract


Countries all over the world are generally concerned about the performance of the stock markets due to its greater contribution to financial stability of the country and by extension economic growth. Through trading in securities in the stock market, the country is able to mobilize savings and channel it to viable investment opportunities which ultimately lead to expansion of GDP. Several studies have been carried out in Rwanda regarding the stock market performance but none looked at the macroeconomic effects on stock market performance in Rwanda. The study analyzed the effects of exchange rate, GDP growth rate, inflation (CPI) and interest rate (KRR) on stock market performance measured by market capitalization. The study used monthly time series data for a period of 6 years. Engel Granger Cointegration tests were carried out to determine the long run relationship between the variables respectively. The study adopted VAR method in analyzing the effects of the above macroeconomic variables on stock market performance. This involved computing impulse response functions and Variance Decomposition Analysis. The findings indicated that GDP, inflation and exchange rate are negatively significant in affecting stock market performance while interest rate is negatively insignificant. The study recommended that public awareness campaign on the importance of RSE should be carried out, industrialization should be encouraged to avoid high importation, money supply should be regulated to reduce inflation, Key repo rate should be lowered to encourage more borrowing for investment. This study will be important to the government in encouraging more investments through growth of RSE hence employment creation. It’s also important to the management of RSE more so to the policy analysis department in strategic decision making and offering advice to the relevant stakeholders towards achieving growth of securities market. Lastly, the study will also add on the existing literature and act as a basis of reference for future researchers.

 

Article visualizations:

Hit counter

DOI

Keywords


macroeconomic variables, stock market performance, market capitalization, RSE, VAR analysis

Full Text:

PDF

References


Barakat Mahmoud (2016). Impact of Macroeconomic Variables on Stock Markets: Evidence from Emerging Markets. International Journal of Economics and Finance, 195-97.

Bhunia, A. (2012). A causal Relationship between Stock Indices and Exchange Rates: Empirical Evidence from India. Research Journal of Finance and Accounting, 3(1),47-54.

Chris Brooks. (2008). Introductory Economics for Finance. Cambridge: Cambridge University Press.

Cohn & Modigliani. (1979). Inflation, Rational Valuation and Market Performance. Financial Analysis Journal, 35,24-44.

Crosby. (2001). Stock Performance and Inflation. Economics papers, 156-65.

Dimitrova, Desislava. (2005). The Relationship Between Exchange Rate and Stock Prices: Studied in a Multivariate Model. Issues in Political Economy, 14(1),3-9.

Engel & Granger.(1987). Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica.

Floros, Christos. (2004). Stock Performance and inflation in Greece. Applied Econometrics and international Development,. 4(2), 55-68.

Frisch, H. (2010). Theories of Inflation. Cambridge: Cambridge University Press.

Gall & Borg. (1989). Descriptive Research Methodologies.

Geweke. (1983). Comparing Alternative Tests of Causality in Temporal Systems: Analytical Results and Experimental Evidence. Journal of Econometrics, 161-194.

Job Wanjala (2014). Macroeconomic determinants of Stock Market Performance in Kenya: Case of Nairobi Securities Exchange. Nairobi: University of Nairobi Repository.

Keynes (1930). Treatise on Money and the General Theory of Employment, Interest and Money. MaynardKeynes.org.

Joselius & Johansen (1990). Maximum likelihood estimation and inference on cointegration with application to the demand for money. Oxford Bulletin of Economics and Statistics.

Joseph, N. (2002). Modelling the impacts of interest rate and exchange rate changes on UK stock Returns, Derivatives Use Trading and Regulation. VII (4), pp.306- 323, 2002.

Gatuhi K. (2014). Macroeconomic Factors and Stock Market Performance in Kenya. Nairobi: Jomo Kenyatta University of Agriculture and Technology.

Heng Lee Ting et al (2012). Macroeconomic Determinants of Stock Market Return: The Case in Malaysia. Kuala Lumpur: Universiti Tunku Abdul Rahman.

Kothari. (2004). Methods of Social Research. New York: Free Press.

Kumar, P. (2015). Determinants of Stock Market Performance in Nepal.

Lamin, L. (1997). Stock Market Equilibrium and Macroeconomic Fundamentals. IMF Working Papers, 97/15.

Maingi. (2010). Impact of Government Expenditure on Economic Growth in Kenya. Nairobi: Kenyatta University.

Maku and Atanda (2010). Determinants of Stock Market Performance in Nigeria: Long run Analysis. Journal of Management and Organizational Behaviour, 5-16.

Mehwish Zafar (2013). Determinants of Stock Market Performance in Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 4(5),1017-18.

Mongeri O. (2011). The Impact of Foreign Exchange Rates and Foreign Exchange Reserves on the Performance of Nairobi Stock Exchange Share Index. Nairobi: University of Nairobi.

Sellin P. (2001). Monetary Policy and Stock Markets: Theory and empirical evidence. Journal of Economic Surveys, 15(4),491-541.

Protopapadakis, F. a. (2002). Macroeconomic Factors do Influence Aggregate Stock Returns: Review of Financial Studies.

Ross, S. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory, 13(3),341-360.

Rucha and Burange (2013). Determinants of India’s Real Exchange Rate. An ARDL Approach. Mumbai: University of Mumbai.

Ugur S. (2005). Inflation, Stock Performance and Real Activity in Turkey. The Empirical Economics Letters, 4(3),181-192.

Mishkin G. and Eakins F. (2009). Financial Markets and Institutions. Pearson Education India.

Salemi, G. (1982). A causal Analysis of Defense Spending and Economic Growth.

Shaw. (2003). Capital market Performance and the Nigerian Economic Growth.

Smith et al. (2001). Bound Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics.

Spyros. (2001). Stock Performance and inflation: Evidence from an emerging market. Applied Economics Letters, 8(7),447-450.

Taylor. (2007). The Explanatory Power of Monetary Policy Rules. Business Economics, 42(4),8-15.

Wong et al (2000). Stock Performance during German Hyperinflation. Quarterly Review of Economics and Finance, 40.375-386.


Refbacks

  • There are currently no refbacks.


Copyright (c) 2018 Gatsimbazi Innocent, Jaya Shukla, Patrick Mulyungi

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2015 - 2018. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing GroupAll rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.