The Nexus between Market Tightness and Economic Growth – A Case of Kenya

Richard Wamalwa Wanzala^1, , Willy Muturi² and Tobias Olweny²

¹Department of Agriculture and Recourse Economics, Jomo Kenyatta University of Agriculture & Technology, Nairobi, Kenya

²Department of Economics, Accounts and Finance, Jomo Kenyatta University of Agriculture & Technology, Nairobi, Kenya

Cite this paper:
Richard Wamalwa Wanzala, Willy Muturi and Tobias Olweny. The Nexus between Market Tightness and Economic Growth – A Case of Kenya. Journal of Finance and Economics. 2017; 5(6):259-268. doi: 10.12691/jfe-5-6-2

Abstract

This study investigates the nexus between the market tightness and economic growth in Kenya using data from 2006 – 2015 from Nairobi Security Exchange and Kenya National Bureau of Statistics. A parsimonious moderating regression analysis (MRA) has been presented to examine whether real interest rate and risk premium individually moderates the relationship between stock market tightness (proxied by various versions of spread) and the economic growth (proxied by Real Gross Domestic Product (GDP)) in Kenya. The study shows that both real interest rates and risk premium moderates the relationship between stock market tightness and the economic growth in Kenya.

Keywords:
market tightness moderating regression analysis real interest rate risk premium economic growth

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