BBSE Research Projects (2014)

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    Effects of government expenditure on economic growth in Kenya - (1990 - 2012)
    (Strathmore University, 2014) Abwoga, Timothy
    Given the recent fiscal scenario of the Kenyan government, an explanation of this required studying the impact of government expenditure on economic growth. The specific objectives of the study were to: investigate the existence of a long term relationship between the components of government expenditure and economic growth; and examine the effects of components of government expenditure on GOP growth rate. The data used were government expenditure components that included expenditure on government investment, and government consumption. Sources of data were Kenya government documents and international financial publications. The study applied Vector Auto Regression estimation technique using annual time series data for the period 1960 to 2012 to evaluate the impact of government expenditure on economic growth. The Johansen cointegration tests revealed a long-run relationship between GOP growth rate and the selected components of government expenditure. Further, the Granger- Causality test indicated bi-directional causality between GOP growth rate and components of government expenditure. The results of impulse response functions and variance decomposition revealed that government expenditure on investment, and total government expenditure had a positive effect on economic growth while government consumption had mixed effects. The study concludes by giving policy recommendations based on findings and suggests areas such as optimal level of government expenditure for future studies.
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    Financial development and economic growth in Kenya 1990 to 2010
    (Strathmore University, 2014) Mutiga, Brian Muchiri
    This study is intended to investigate the link between financial development and economic growth with special emphasis on the banking sector and the stock market in Kenya. The nature of the relationship was determined through an econometric analysis off financial development on Kenyan economic growth. A time series analysis was employed through the Vector Error Correction framework after cointegration had been established among the variables through the Johansen cointegration test framework. The model was adopted to estimate the effects of the banking and stock market indicators on economic growth. The existence of a long term relationship between financial development and economic growth was achieved through the Johansen co integration test which confirmed the existence of a long run relationship and the construction of a Vector Error Correction framework which confirmed the significance of the long term relationship. The direction of causality between financial development and economic growth was carried out using the Granger-causality framework and established the existence of bi-directional causality between financial development and economic growth with banking development having a greater impact on economic growth than stock market development. The results of the study indicate that there exists a long run equilibrium relationship between financial development and economic growth in Kenya and bi-directional causality running from financial development to economic growth and also from economic growth to financial development.
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    Evolving roles of SACCOs - the case of 14-seat transport SACCOs in Kenya
    (Strathmore University, 2014-03) Bii, Collins Kiprotich
    Paratransit is a mode of transport that operates parallel to an organized, usually large-scale government or government subsidized transport system. Paratransit is the main public transport in Kenya and it is estimated that it controls 80 per cent of the public transport. The number of ' matatus' is estimated at eighty thousand; twenty and sixty thousand, in Nairobi and upcountry, respectively. Seventy per cent of the "matatus" commonly referred to as "Nissans" and valued at ksh.50 billion IUSD 625millions, are 14-seater vehicles. The intention of the Legal Notices No. 161 of2003, No. 83 of2004 and No. 65 of2005 was to regulate the public transport sector as part of the Integrated National Transport Policy (INTP). The National Road Safety Action Plan (NRSAP) was meant to restore order, reduce accidents, increase passenger safety, reduce conflicts and safeguard private investment in the public transport sector. Other objectives were, to facilitate the transition of the paratransit business from the informal to the formal economy, increase employment opportunities and inculcate a culture of respect for the motor sector regulations. The Government's preferred strategy to tame this sector and reap the expected benefits was to direct all current and potential paratransit operators to upgrade their 14-seater vehicles to high capacity of more than 25 seats and to establish matatu SACCOs, as a condition for licensing of their vehicles to operate as public service vehicles. The formulation and implementation of this policy was top down, rather than bottom up. However, inadequate stakeholder consultation and consensus building during policy formulation and implementation resulted in low understanding of the policy, low ownership and low implementation. Individual paratransit operators and existing matatu SACCOs that were operating predominantly 14-seater matatus started fiercely resisting these preconditions terming them, insensitive, draconian, too expensive to implement and likely to force them out of business. The purpose of this study therefore, was to analyze the socio economic impact of the 14-seat transport SACCOs in Kenya.
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    Applying the black litterman model to the NSE
    (Strathmore University, 2015) Mbabu, Willis Mwenda
    This study applies the Black-Litterman model to portfolio allocation on the Nairobi Securities Exchange and questions its economic importance. It begins by explaining how the model works the proceeds to implement it. This is done by creating portfo lios generated using analyst view from two Research Houses in the Kenyan market, namely Standard Investment Bank (SIB) and African Alliance Investment Bank (AA). Using past return data on the eight stocks selected, the views are translated into expected returns which are then optimized into weights to create the two portfolios. The two portfolios are then tracked over a period of four months against the created market portfolio. The SIB portfolio performs best earning a daily average log return of 053%, followed by the market at -0.0 I% and the AA portfolio at 0.12%. We fail to reject the null that the returns between SIB and the market, and the market and AA are the same. The nu ll that the returns between SIB and AA are similar is, however, rejected. We find that an economic gain is derived from using the Black-Litterman model where the views are correctly specified.
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    Examining the potency of foreign currency as an asset class - evidence from Kenya
    (Strathmore University, 2014) Mwaniki, Maryanne Wairimu
    In this study I allocate currency assets namely, the US dollar, the Great Britain Pound, the Japanese Yen and the Tanzanian shilling to a portfolio using mean variance optimization. Similarly, I analyze currency as an asset class within the Kenyan context and given the various attributes pertaining to asset classes, the currency portfolio exhibited all the characteristics. The portfolio had positive returns thus giving investors an opportunity to make profits; the assets are strictly mutually exclusive since they can only be classified under currency assets, homogenous and liquid. The Tanzanian shilling met the criterion that assets should have low correlations relative to other asset classes. However, the pound, the dollar and the Yen exhibited quite high correlations to the equity class. Mean variance analysis has been used to create portfolios that minimize risk for a given level of return and the resulting currency portfolio performed better than the equity class given that it had higher returns and lower risk. The study lead to the conclusion that currency is an asset class and can be allocated to portfolios using mean variance optimization.