Market resiliency conundrum: is it a predicator of economic growth?

• Main Authors: Richard Wamalwa Wanzala, Willy Muturi, Tobias Olweny
• Format: Article
• Language: English
• Published: KeAi Communications Co., Ltd. 2018-03-01
• Series: Journal of Finance and Data Science
• Subjects: Liquidity ratio; Variance ratio; Moderating regression analysis; Market resiliency; Economic growth; Real interest rate; Risk premium; CUSUM plot
• Online Access: http://www.sciencedirect.com/science/article/pii/S2405918817300569

Resiliency provides fundamental insights on the speed at which the marginal price impact increases as transaction volume increases in the stock market yet very few empirical research has been dedicated to its study. Consequently, this study was directed towards determining whether market resiliency is a predicator of economic growth. Secondly, the study also sought to examine whether real interest rate and risk premium moderate the relationship between stock market resiliency and the economic growth in Kenya. To solve the conundrum on the relationship between market resiliency and economic resiliency growth, a sagacious moderating regression analysis (MRA) was used. The liquidity and variance ratios were used as measures of resiliency while real interest rate and risk premium were taken as moderating variables. The CUSUM plots were used to determine the stability of the model. The results of this study shows that market resiliency is a predicator of economic growth and both real interest rates and risk premium moderates the relationship between stock market resilience and the economic growth in Kenya.