The Effect Of The 2008 Global Financial Crisis On The Performance Of Stock Indices At The Nairobi Securities Exchange

The year 2007/2008 saw the world witness one of the greatest financial crises ever since the Great Depression of the 1930s. This research narrows down the effects of the crisis to the stock indices at the Nairobi Securities Exchange, namely; the Market Capitalization Index, the NSE 20 Share Index and the Volumes Traded Index

The research employed a descriptive research method, and the sampling technique used was cluster sampling. The research utilised questionnaires and semi-structured interviews from managers at the NSE and the CMA, and market analysts from stock brokerage firms to collect the data. To determine the reliability of the tools employed, the Cronbach’s alpha (α) test was conducted. To check on validity of the study, the convergent and the content validity tests were conducted with the data being processed using excel, SPSS software and a multiple regression analysis.

The study found that there was a decline of the market indices, which began in the third quarter of 2008 extending to the fourth quarter of the same year. The biggest negative effect of the decline was felt in the first quarter of 2009 where the values, prices and the number of stocks being traded declined substantially, eroding the gains made in the years prior to the occurrence of the global financial crisis in the Kenyan stock market.

The study recommends that countries should impose tailored restrictions that are country specific in opening up their stock markets, careful vetting of new products introduced to the market vetted by relevant authorities, broad based economic reforms by governments, solid financial and economic management and timely governmental intervention and a proactive private sector that restructures its operations with new measures to cut costs.