Kihato k. Wamburu
Dr. Gituro Wainaina
CITATION: Wamburu, K. K. & Wainaina,G. (2014). Determinants of Stock Market Development In Kenya: An Error Correction Model Approach. European Journal of Business Management, 1 (11), 230-244.
Stock market development is a multi-dimensional. It is usually measured by stock market size, liquidity, volatility, concentration, integration with world capital markets, and the legal rule (regulation and supervision) in the market. The financial stock market facilitates higher investments and the allocation of capital, and indirectly the economic growth. Sometimes investors avoid investing directly to the companies because they cannot easily withdraw their money whenever they want. But through the financial stock market, they can buy and sell stocks quickly with more independence. Most economic managers recognize that a well organized capital market is crucial for mobilizing both domestic and international capital. In many developing countries, however, capital has been a major constraint in economic development. The determinants of stock market development in Kenya, it is faced with a major challenge of non-normality of data which it recognized but did not correct before performing the regression analysis. This renders the results of the study spurious. This study was therefore motivated by the importance of stock market development to the economic growth of Kenya and by the inconsistencies in results on Kenya as well as the methodological challenges. The study sought to employ the error correction model to assess the determinants of stock market development in Kenya. This study used a descriptive approach. Descriptive studies are more formalized and typically structured with clearly stated hypotheses or investigative questions.. The findings of the study will be important to the Policy makers in their quest to develop the financial and stock market in Kenya as the results will point to the areas that need further review in order to develop the stock market in Kenya. The results of the study will also be important to researchers and academics as it will offer an insight on the modeling aspects of determinants of stock market development in Kenya and suggest areas that need further research by scholars in this area.
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