Determinants of stock market performance in Uganda

Abstract

The stock market plays a pivotal role in the modern global economy, serving as a barometer of economic health and a source of capital for businesses. Understanding the determinants that influence stock market performance is essential for investors, policymakers, and financial analysts alike. This abstract provides a concise overview of the key determinants that impact stock market performance, drawing upon a broad spectrum of economic literature and empirical studies. This analysis focuses on the macroeconomic factors, such as foreign exchange, inflation, remittances and interest rates. These are fundamental drivers of stock market performance. Studies consistently show that strong economic growth and low inflation tend to boost stock prices. Additionally, central bank policies, especially changes in interest rates, have a direct impact on investor behavior and market valuations. The study objectives seek to examine the trend of stock market performance in Uganda, to examine the trend of determinants of stock market performance in Uganda and to examine the relationship between the determinants and stock market performance in Uganda. The study applied both descriptive and correlational research designs for the period between January 2001 to December 2020 for all variables. The study used secondary data obtained from Uganda Securities Exchange (USE) and Bank of Uganda (BOU) websites. Data on stock market returns was collected from the Uganda Securities Exchange. Remittances statistics, inflation, interest rates and Foreign exchange rates were collected from the Bank of Uganda statistics portal of their website for the study period. The study revealed a positive relationship between foreign exchange and remittances on stock market performance and a negative relationship between interest rates and inflation on stock market performance. These findings are consistent with previous research and empirical studies. The interplay of these determinants is complex, as they often reinforce or counteract each other. For example, while stock prices rise, this may lead to excessively high inflation which could erode real returns, leading to market uncertainty. In conclusion, a comprehensive understanding of the determinants of stock market performance is crucial for investors and policymakers to make informed decisions. Continuous monitoring and analysis of these determinants are essential for navigating the dynamic and ever-evolving world of stock market investing.