Cointegration Relationship Between Exchange Rate Volatility and Performance of Nairobi Securities Exchange Market, Kenya

The stock exchange markets in developing countries are generally characterized as unstable and shallow. The current international integration of financial markets provides a channel for currency depreciation to affect stock prices, thus there is need to identify if there is any relationship between the two markets. Specifically the study seeks to determine the trend and correlation between the exchange rate and the NSE 20 share index; and establish empirically the long run relationship between the exchange rate and the NSE 20 share index. Based on the theoretical framework on “flow-oriented” and “stock-oriented” models of exchange rates, the study will be able to determine the relationship between the two financial markets. Exploratory and correlational research design was used. The target population consisted of all the 55 stocks listed at NSE as at December 2011 from which NSE 20 share index is derived from. Due to the nature of the study of finding the relationship between the Exchange rate and the NSE 20 share index which are all time series. Correlation analysis, Augmented Dickey Fuller Test, and Engle and Granger (EG) Co integration Test were adopted using the use monthly time series from 1996:1 to 2011:12. The results indicated that there is a significant weak negative correlation between the NSE 20 share index and the exchange rate of -0.224. Both the series are integrated of order one. On the other hand, results from the cointegration regression indicate that the residual (error) series are not stationary at levels but it is stationary in the first difference or is generated by an integrated of order one process at both the 1% and 5% significance levels indicating no long run relationship between the two markets that is the Securities market and the foreign exchange market. Keywords: Cointegration relationship, Exchange rate Volatility, Nairobi Securities exchang

The Relationship Between Money Supply and Real Effective Exchange Rate Fluctuations in Kenya

Exchange rates play an important role in economic growth especially through foreign trade. Exchange rates in Kenya have been experiencing fluctuations since the transition of the fixed exchange rate regime of the 1960s to the crawling peg of the 1970s to 1980s and lately the floating exchange rate of the 1990s to date. The exchange rate has oscillated between Kshs. 7.142 in 1960s to Kshs. 102.35 per unit US dollar in 2015. The magnitude of exchange rate fluctuations in most developing economies has attracted the interest of many scholars including economists and policy makers. These scholars have however differed on the determinants of real effective exchange rate fluctuations and their respective levels of significance. The purpose of this study therefore was to examine the relationship between money supply and real effective exchange rate fluctuations in Kenya. External debt, trade balance and inflation rate were used as the intervening variables. The study was anchored on the balance of payments theory of exchange rate determination. The study used annual time series data for the period (1972-2015). The study used correlational study design and it employed the stationarity tests, cointegration and ECM. The study concluded that there exists a positive significant relationship between money supply, trade balance, inflation rate and real effective exchange rate fluctuations in Kenya. An increase in money supply also leads to depreciation in the Kenyan shilling same to an increasing inflation rate. An increasing debt burden depreciates the Kenyan shilling. These results are in conformity with the balance of payments theory of exchange rate determination. The study recommends that policy makers should formulate sound credit control policies to control money supply in the economy. Keywords: Money supply, exchange rate, trade balance, external debt, inflation rate, Kenya DOI: 10.7176/JESD/10-12-14 Publication date:June 30th 201

IS KENYA’S CURRENT ACCOUNT SUSTAINABLE? A STATIONARITY AND COINTEGRATION APPROACH

The objective of this paper is to examine the sustainability of the current account deficits in Kenya. In this respect, stationarity and Cointegration test was employed to ascertain sustainability of the current account in Kenya between 1970 to 2012.The choice of the set of variables were motivated by the existing theories about the long-run intertemporal budget constraint. Results indicate that Current account is stationary at levels implying that its mean reverting and temporary and that external debt is finite and sustainable. The empirical results suggest that exports and imports are cointegrated with the cointegrating coefficient of 0.21989 which is significantly not equal to one, but equal to zero, implying that the current account was not on the sustainable path indicating a weak form of sustainability. The paper concludes that Current account deficit of Kenya may not be sustainable in the long-run

Examination of the Interaction of Tourism Seasonality, Hospitality Enterprise Size, and Patronage Rate in Visitor Flow Dynamics in Kisumu Region, Kenya.

Tourism seasonality has significantly impacted hospitality enterprises\u27 financial stability and operational efficiency. However, its interaction with enterprise size and patronage rate remains underexplored, particularly in urban destinations such as Kisumu Region, Kenya. This study examines how tourism seasonality, hospitality enterprise size, and patronage rate influence visitor flow dynamics. A mixed-methods research design was adopted; the study integrated quantitative analysis of visitor numbers with qualitative insights from key industry stakeholders. Results indicate that Seasonality significantly affects visitor numbers, with larger enterprises exhibiting more pronounced seasonal fluctuations than smaller ones. However, patronage rates do not significantly moderate these trends, suggesting that customer behavior remains relatively consistent across seasons. The results highlight the need for tailored business strategies based on enterprise size and policy interventions to promote Kisumu as a year-round destination. The study contributes to the broader discourse on sustainable tourism management by providing empirical insights that inform business resilience and policy Planning in seasonally affected urban tourism destinations

Effect of Exchange rate, Gross Domestic Product, Real Interest rate and Inflation on Banking Financial Stability in Kenya

Financial institutions and markets are the backbone of any economy and the banking sector is the most important engine for economic growth development of any country. Kenya has a vibrant banking sector and well regulated, however it has had a history of bank failures, with about thirty-seven banks failing between 1986 to 1998. In 2015, three Kenyan banks were placed under statutory management due to financial distress. The stability of commercial banks in Kenya has not been that robust. With financial openness and liberalization, financial stability issues in the banking industry in relation to the macroeconomic environment has become a concern. It was therefore vital to investigate the relationship between macroeconomic variables and financial stability. Specifically, the objectives of the study were to; determine effect of real Gross Domestic Product (GDP) on banking financial stability; Examine the effect of real interest rates on banking financial stability; Evaluate the effect of exchange rates on banking financial stability; Determine the effect of inflation on banking financial stability in Kenya. The study was anchored on the Mundell-Fleming Model also known as AD-AS-IS-LM-BOP framework. The study was quantitative in nature and adopted a positivist research philosophy, having a correlational design using the econometric methodology. The study used the Autoregressive Distributed Lag Model Cointegration and error correction; Variance decomposition and impulse response in its data analysis. Data presentation was done by use of tables and graphs. The findings indicate existence of both long run and short run relationship between the exchange rate, GDP, real interest rate, inflation and Banking financial stability in Kenya. The error correction coefficient was estimated to be -0.2122 (0.0025) and significant, and this implies that there is a fairly 21% of speed of adjustment to equilibrium after a shock. The Variance decomposition and Impulse response indicates that exchange rate and GDG has a large effect on financial stability as compared to Real interest rate and inflation rate. The results further indicate that financial stability in the sector depends so much on the previous year’s performance, this has been attributed to the regulatory framework in the sector. The study recommends that the regulator continues to lay the macro prudential regulations to maintain the stability of the sector. Secondly, the central bank needed to grow its exchange rate reserves if it were to face down the threat of external and internal drains on the exchange rate that later has an in effect to financial stability. Thus, reserve adequacy has to be gauged against the size of the banking sector. Keywords: Exchange rate, GDP, Financial Stability DOI: 10.7176/JESD/15-7-02 Publication date: July 30th 202

Determination of Cost Efficiency Level of Production among Sugarcane Farmers in Nyanza Region, Kenya

In agricultural production, labour, capital and land are critical ingredients in increasing output levels. In sugarcane and food crops production, farmers always experience competing requirements on production inputs. In Kenya, farmers are uprooting sugarcane to compensate for food deficits without due regard to the possibility that these two crops can coexist in case production inputs are in short supply. Based on production theory, this study established the cost efficiency level and the possible likelihoods sugarcane farmers, in Nyanza region, can make given the production inputs. Cross sectional data and Stratified random sampling was used. Stochastic Frontier and Multinomial Logit regressions obtained the results which showed that sugarcane farmers were cost inefficient; the significant determinant of choices that farmers make were the cost of labour and the cost of land. However, they were positive and negative respectively. This paper recommended for the betterment of wages and cost of land controls if efficiency and sugarcane output is to be increased. Keywords: Cost efficiency, Sugarcane, Food Security, Farmers DOI: 10.7176/JESD/11-16-08 Publication date:August 31st 202

Relationship Between Asymmetric Information and Equity Returns in the Kenyan Capital Market. A Cointegration Approach

This paper sought to investigate the cointegration relationship between asymmetric information and equity returns. Previous literature has shown asymmetric information influences Assets returns but it is less known whether there exists a long run relationship between these variables.  In this regard stationarity tests and Johansen cointegration test were employed to ascertain whether there exists a long run relationship between the two variables. Data composed of monthly transaction on the 20 equities used in formulation of the NSE 20 share index over the period between Jan 2009 and up to March 2018 which formed 111 data points. The results showed that equity returns were stationary at levels using the Augmented Dickey Fuller Test, Phillip-Perron and KPSS while Asymmetric information was non-stationary at levels, but stationary at first difference. The results also showed that Asymmetric information weakly positively correlated and insignificant, r (99) = .08, p =.35 with equity returns using Pearson’s correlation coefficient. Johansen Cointegration test indicated existence of a cointegrating equation indicating a significant long run relationship between asymmetric information and equity where decrease of 0.0093% in asymmetric information is associated with an increase in equity returns in the long run and vice versa. We conclude there is a significant long run relationship between asymmetric information and equity returns. Keywords: Asymmetric information, Equity returns. DOI: 10.7176/RJFA/12-18-07 Publication date:September 30th 202

Effect of Foreign Direct Investment, Inflation, Real Exchange Rate and Transfer Payments on Trade Deficit in Kenya

Across all the countries, the balance of trade has remained a key indicator of economic activities as it shows a country’s level of competitiveness in the world market. Economists are divided on whether a persistent trade deficit is good or bad for a developing country like Kenya. Contrary to most of the similar previous studies, this study included trade in services as well as some of the key factors affecting trade balance such as inflation and transfer payments and sought to establish the nature and strength of their connection with the trade deficit in Kenya as well as their respective impulse responses. This study adapted a reduced form of the balance of trade model by hypothesizing that balance of trade is a function of FDI, inflation, real exchange rate and transfer payments. The study embraced an ex post facto correlational research design to gauge the elements and earnestness of synergy between the variables and used time series data obtained from the World Bank ranging from the year 1978 up to the year 2014 with annual frequency. This study also employed use of descriptive statistics, Cointegration, Vector Error Correction Model, Granger causality, impulse response function tests as well as a range of other diagnostics tests. This study concluded that in the long-run, only inflation and transfer payments have positive and negative significant effects respectively on both trade deficit and also foreign direct investments through there is no respective causality. This study also established that trade deficit has positive significant short-run effects on transfer payments while real exchange rate has positive significant short-run effects on inflation though there is also no respective causality. This study found that any shocks need to be addressed within the shortest possible timeframe as the impulse response functions indicate the effects being adverse within the first few years as effects only begin to die out from the fourth year. The study therefore concluded that trade deficit is not really bad for Kenya as measures that should reduce it actually reduces foreign direct investments which are really important for a growing economy like Kenya.</jats:p