Determinants of investor confidence for firms listed at the Nairobi stock exchange, Kenya

Abstract

This study investigates thedeterminantsof investor confidence for firms listed atNairobi Stock Exchange (NSE) for the period 2001 to 2008. Information on stock market volatility was collected basedon news and events at NSE and macroeconomic factors. The news and events are found to affect the stock market ascaptured by thechanges in the prices; asmeasure of investor sentiment that is capable of explaining a significant proportion of the changes in the stock market index. The results showthat political/economic stability, economic growth, and stock market liquidity play a key role in stock market development. The study concludesthat daily price movements in the NSE are significantly related toinvestor sentiment.Consequently, investors’ psychology is a potential explanation for stock price movements.Economic growth as given by stock market capitalization and stock market liquidity as given by total shares traded and turnover are important determinants of stock market growth.