MARKET RISK AND STOCK PRICE VOLATILITY FOR FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE
MARKET RISK AND STOCK PRICE VOLATILITY FOR FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE
Mwangi Festus Irungu - Postgraduate Student, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
Dr. Eddie Simiyu - Lecturer, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
The Nairobi Securities Exchange experienced recurrent instability in stock price volatility, between 2013 and 2025, with the NASI index rising to 191 points in 2018 before falling below 90 points in 2023, signaling weakened market performance and erosion of investor wealth. The research overall goal was to examine the effect of market risk on stock price volatility of firms listed at the NSE. Specifically, the research sought to determine the effect of exchange rates, interest rates, money supply, inflation, and foreign remittance inflows on stock price volatility. The research was anchored on the Efficient Market Hypothesis, Modern Portfolio Theory, Arbitrage Pricing Theory, and Noise Trader Theory. A quantitative causal explanatory time series research design was adopted using monthly secondary data for the period 2013 to 2025 obtained from the CBK, KNBS, NSE, and World Bank databases. The target population comprised all firms listed at the NSE, and a census approach was used to ensure complete market coverage. Diagnostic tests were conducted to confirm data adequacy and model reliability. Both descriptive and inferential analyses were used, where descriptive statistics summarized measures of central tendency and dispersion, while inferential analysis involved correlation testing and regression estimation utilizing the Exponential Generalized Autoregressive Conditional Heteroskedasticity EGARCH (1,1) model executed in EViews 13 to capture asymmetric volatility dynamics. The findings showed that exchange rate and interest rates had a positive and significant effect on stock price volatility, money supply and foreign remittance inflows had a negative and significant effect, while inflation had a positive but insignificant effect during the study period. The research concluded that volatility at the Nairobi Securities Exchange was mainly driven by exchange rate and interest rate shocks, with liquidity and remittance inflows helping to moderate instability. It recommended maintaining exchange rate and interest rate stability, sustaining adequate liquidity, managing inflation prudently, and promoting remittance inflows to enhance market stability and investor confidence. Ethical standards were upheld, with all secondary data obtained from accredited institutional sources in line with research integrity requirements.
