A Dissertation Submitted in Partial Fulfilment of the Requirements for Award of
the Degree of (Masters of Science in Accountancy and Finance) of Mzumbe
University
This research explores the relationship between stock market return and
macroeconomic variables in Dar es Salaam Stock exchange, the only emerging stock
exchange market in Tanzania. The observation of 144 months from 2002 to 2013
scientifically analyzed using econometric and financial models taking into account
backup of empirical results from literature review of previous scholars.
Augmented Dicker Fuller and Phillip Peron test utilized to test for unit root as
perquisite for time series data, followed by Granger causality test to examine cause
effect relationship between variables. Vector autoregressive model used to examine
the significance of relationship between return and macroeconomic variables, a part
from determining the sign and magnitude of relation-effect therein.
The result shows that DSEI respond positively to the inflation rate and exchange rate
while negatively to money supply and interest rate. VAR revealed significant effect
on exchange rate, money supply and interest rate, contrary to weak effect related to
the inflation rate variables. Other study variables are industrial production, reserve,
tax threshold and GDP.
The outcome of this thesis discovered potential need to focus on impact of
macroeconomic variables in designing monetary and fiscal policy of the country’s
economy, since; the capital market does respond quickly to the arrival of new
information.