Do exchange rates mediate the relationship between US interest rates, Global Commodity prices and the Kenyan Stock Market?

Abstract

Previous research has shown the effect of the exchange rate on the local stock market, particularly the Nairobi Securities Exchange. In addition to this, various studies have been conducted to find out the effect of various macroeconomic factors as well as global external factors on the Nairobi Securities Exchange. This study aimed to combine all these elements together. There has not been a particular study to find out whether the exchange rate mediates the relationship between global external factors and the local stock market. Therefore, this research paper aimed to find out whether the exchange rate mediates the relationship between the KES/USD exchange rate as well as global commodity prices and the stock market in Kenya. In other words, the paper aimed to find out whether these factors affect the stock market directly or indirectly through exchange rates. It did this by forming 3 regression models which is a test for mediation.