The Nexus between Market Tightness and Economic Growth – A Case of Kenya

Abstract

This study investigates the nexus between the market tightness and economic growth in Kenya using data from 2006 – 2015 from Nairobi Security Exchange and Kenya National Bureau of Statistics. A parsimonious moderating regression analysis (MRA) has been presented to examine whether real interest rate and risk premium individually moderates the relationship between stock market tightness (proxied by various versions of spread) and the economic growth (proxied by Real Gross Domestic Product (GDP)) in Kenya. The study shows that both real interest rates and risk premium moderates the relationship between stock market tightness and the economic growth in Kenya.