The Impact of external public debt on stock market performance in Kenya
Date
2022
Authors
Ochieng’, Sandra Achieng’
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
In recent years, the level of external debt in Kenya has been increasing rapidly with the stock market also experiencing a bear run over the same period. The study therefore aimed to investigate the impact of external public debt as disaggregated into its various categories on stock market performance in Kenya for the period 2015 to 2021. The study used the Nairobi Securities Exchange (NSE) All-Share Index as the dependent variable, with multilateral debt, bilateral debt, commercial debt and guaranteed external debt classified as the independent variables. Based on an assessment of past research undertaken on stock market performance, exchange rates, interest rates and domestic public debt were included as control variables. In accordance with the methods used by previous studies and the fact that the variables used in the present study were both stationary and non-stationary at level form, the research used a descriptive correlational research design and the Autoregressive Distributed Lag (ARDL) model to assess this relationship using monthly secondary data. The analysis of the time series data revealed that given multilateral debt, bilateral debt, commercial debt and guaranteed external debt, none of the variables had an impact on the stock market in the short run. In the long run, only bilateral and multilateral debt had an impact on the market with both variables recording a significant positive effect. As a result, the study recommends the continued need for the government to utilize external debt instruments within the approved limits and to employ the funds in long term, productive economic activities that positively influence the stock market. In addition, given that few studies have been conducted on external public debt when divided into its components, further studies could be carried out on other jurisdictions for comparison.
Description
A Research dissertation submitted to the Strathmore University Business School in partial fulfillment for the Master of Science in Development Finance of Strathmore University
Keywords
Stock market, Multilateral debt, Multilateral debt, Commercial debt, Guaranteed external debt, Autoregressive Distributed Lag Model