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

Abstract

This study investigates the determinants of investor confidence for firms listed at Nairobi Stock Exchange (NSE) for the period 2001 to 2008. Information on stock market volatility was collected base don news and events at NSE and macroeconomic factors. The news and events are found to affect the stock market as captured by the changes in the prices; as measure of investor sentiment that is capable of explaining a significant proportion of the changes in the stock market index. The results show that political/economic stability, economic growth, and stock market liquidity play a key role in stock market development. The study concludes that daily price movements in the NSE are significantly related to investor 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.