The Determinants of Stock Returns in the Emerging Market of Kenya: An Empirical Evidence

Abstract

This study examined the sources of risk factors that determine stock returns in the emerging market of Kenya. The specific objectives were to determine the validity of the Capital Asset Pricing Model (CAPM) and then empirically test for factors that are priced in stock returns in Kenya.The factors examined are the excess market premium and selected macroeconomic factors including inflation, exchange rates, money supply and short term interest rates. The study utilizes monthly time series data for the period April 1996: December 2016. The CAPM, a multifactor approach and Fama and MacBeth (1973) two-step procedure are used for data analysis.The study finds that CAPM cannot be rejected and that the market premium is the most important factor in explaining stock return variability in Kenya. Therefore, the study concludes that unlike the recent evidence on the collapse of CAPM in advanced markets, the model can still be validly used for the Kenyan market.

Effect of Inflation on Kenya’s Maize Production and Food Security

“…Production and consumption trend from 2017 to 2022 Source: Production and Consumption ( 2022) Mumo (2017) further noted that the kilo-caloric maize supply declined from 750 to 648 between 1999 and 2022 (Roberts & Schlenkerl, 2009). These facts raise questions on the contribution of macroeconomic factors such as inflation, unemployment levels, national income, and international trade towards to constant deficit in maize production and food security problem.…”