OIL PRICE VOLATILITY AND ECONOMIC PERFORMANCE IN KENYA: AN ANALYSIS OF THE NAIROBI SECURITIES EXCHANGE INDEX
Abstract
This study undertook a regression analysis of the oil price volatility and its impact economic performance in Kenya; a case study of the NSE 20 Share Index. The study used longitudinal research design. The population consisted of all the 65 firms listed in the NSE as at December 2014. The population sample was the 20 firms listed at the NSE 20 share Index as at December 2014. Financial reports was analyzed for a period of 5 years from 2015 to 2020 for the 20 listed firms. The NSE 20 share index for five years (2015-2020) was compared to Oil price volatility for the same period with inflation and Exchange acting as the control variables. Data on oil process was obtained from EPRA while inflation and exchange rate date was available on the Central bank of Kenya website. Regression analysis was performed on the data to determine any effect of oil price volatility on Economic performance. The findings indicated that the average annual Oil price volatility for the period of 5 years was 42 and a standard deviation of 0.048, while the average in performance of the NSE 20 share Index for the 5-year period was 5.5% with a standard deviation of 0.027. The average exchange rate Volatility was 9.6% with a standard deviation of 0.072. The average annual inflation for the 5-year period was 8.0% with a standard deviation of 2.1. A trend analysis of the growth rate of Oil price volatility was undertaken to establish the change in performance of the NSE 20 share Index listed as result of Oil price volatility. For the assessment of the link between Oil price volatility and performance of the NSE 20 share Index correlation analysis was undertaken. The findings suggested that a negative correlation existed between performance of the NSE 20 share Index and the Oil price volatility. The research utilized One-way ANOVA to establish the significance of the regression model from which 110.581-probability value was determined. This suggeste that the regression relationship was highly substantial in predicting the manner in which Oil price volatility affect performance of the NSE 20 share Index. The F calculated at 5% level of significance was 110.581. Because F calculated is higher than the F critical it signifies that the whole model was significant. The studied independent variables describe a significant 88.8% of change in performance of the NSE 20 share Index of as denoted by adjusted R2 (0.888). Hence this implied that the independent variables contribute 88.8% of change in performance of the NSE 20 share Index while other aspects as well as random variations not explored in this study contributes 11.2% of performance of the NSE 20 share Index.
Keyword: Volatility, Speculation, Geopolitics, Currency, Oil Markets, Economic Performance
CITATION: Bureti, B. K., & Olweny, T. (2023). Oil price volatility and economic performance in Kenya: An analysis of the Nairobi Securities Exchange Index. The Strategic Journal of Business & Change Management, 10 (2), 1206 – 1226.
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DOI: http://dx.doi.org/10.61426/sjbcm.v10i2.2659
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