Analysis of the effect of efficiency on liquidity in Kenya’s next derivatives market moderated by market innovation

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dc.contributor.authorNsale, P. C.
dc.date.accessioned2025-11-12T10:20:53Z
dc.date.available2025-11-12T10:20:53Z
dc.date.issued2025
dc.descriptionFull - text thesis
dc.description.abstractLiquid and efficient derivatives markets are essential for financial resilience, effective risk management, and capital market development. This study examines how efficiency influences liquidity in Kenya’s NEXT derivatives market, and by assessing the effect of operational efficiency on liquidity, analyzes the dynamics between liquidity and market efficiency; and evaluates the moderating role of market innovation on the relationship between efficiency and liquidity. Anchored in market microstructure and efficiency theories, the study adopted a positivist research philosophy within a quantitative descriptive research design. The study population included all Futures contracts and their underlying asset prices, with a census sampling technique used to select and collect secondary data from January 2021 to December 2024 in the Nairobi Securities Exchange (NSE). Data analysis combined descriptive and econometric methods. Descriptive statistics were applied to calculate means, standard deviations for each variable. Econometric techniques, including panel regression, vector autoregressive, and Granger causality, were applied. A Market Innovation Index was constructed using principal component analysis to test moderation effects, reflecting a dimensionality reduction technique of eight standardized innovation-related related. STATA and EViews were used for data processing. The findings indicated that trading volume and order books enhance liquidity, while high transaction costs and exchange rate volatility had adverse effects. Price discovery is more efficient in futures contracts, though asymmetry volatility reveals inefficiencies in price adjustment. Innovation was found to significantly moderate the effect of trading volume on liquidity but not the impact of transaction costs. Granger causality tests identified a unidirectional relationship from efficiency to liquidity. These findings suggest that regulatory and technological improvements are crucial for strengthening Kenya’s derivatives market. The study provides a data-driven foundation for reforms and comparative analysis in other emerging derivatives markets. Keywords: Liquidity, Efficiency, Operational Efficiency, Market Efficiency, Market Innovation.
dc.identifier.citationNsale, P. C. (2025). Analysis of the effect of efficiency on liquidity in Kenya’s next derivatives market moderated by market innovation [Strathmore University]. http://hdl.handle.net/11071/15831
dc.identifier.urihttp://hdl.handle.net/11071/15831
dc.language.isoen
dc.publisherStrathmore University
dc.titleAnalysis of the effect of efficiency on liquidity in Kenya’s next derivatives market moderated by market innovation
dc.typeThesis
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MCOM Theses and Dissertations (2025)