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Arising market problems may be linked to huge fluctuations in macroeconomic fundamentals and asset prices. The major factors that influence the prices of a share are; broad money supply, interest rate, economic growth, exchange rate and inflation. The Dar es Saalam Stock Exchange Market have experienced a slightly volatility in share prices. The study assessed the effect of macroeconomic variables on stock price volatility of listed commercial banks in DSE.
The study adopted causal research design, where purposively sampling was used to selected CRDB, NMB and DCB as sample for the study. The study utilized secondary data (from 2010 to 2019) collected from DSE, NBS and BOT using template collection. Diagnostic tests such as multicollinearity, outliers, autocorrelation, normality, stability test and heteroscedasticity were made. The study adopted descriptive statistics, correlation matrix for relationship, bound cointegration for long run relationship, granger causal test for causal relationship and error correction model to check both long and short run effect of macroeconomic variables on stock price volatility.
The study found a strong negative correlation between stock price volatility and interest rate and inflation rate. Also the study found there is long term relationship between inflation rate, exchange rate, money supply, economic growth, interest rate and stock price. In addition the study found money supply, economic growth and exchange rate were the key variables which influence stock price volatility.
The study concluded that there is an existence of long run relationship between the selected macroeconomic variables and stock price volatility. Furthermore the study pointed out broad money supply, economic growth and exchange rate were the key macroeconomic variables that influence stock price volatility. In addition to that, unidirection between macroeconomic variables and stock prices of CRDB, NMB and DCB was found. Moreover macroeconomic variables influence stock price volatility of listed commercial banks in DSE positively or negatively depending on the nature of the variable example when economic growth increase cash flow increase, like wide money supply rate increase while interest rate decrease which result into enough cash flowing to capital market causing share prices to increase and vice versa. The study recommends all existing, potential investors and other stakeholders should take into consideration key macroeconomic variables that influence stock price volatility and take into consideration key variables to anticipate their impact on their stock price |
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