Mediating Effect of Market Liquidity Risk on the Relationship Between Systematic Risks and Stock Market Return Volatility Among Firms Listed at the Nairobi Securities Exchange, Kenya
DOI:
https://doi.org/10.53819/81018102t5414Abstract
This study sought to assess the mediating effect of market liquidity risk on the relationship between systematic risks and stock market return volatility among firms listed at the NSE, Kenya. Volatility in the stock market in Kenya has been on the rise in the recent years. Further, research gaps exist in the literature in the Kenyan context which creates the need to undertake this research. The study was anchored on positivism philosophy supported by correlational research design. The target population was all 62 NSE listed companies listed between 2014 and 2024. Secondary data was gathered using record sheet. The data was gathered from NSE, KNBS, CMA and world bank reports. The data was analyzed through timeseries moderating multiple regression model. Further, descriptive statistics were utilized to show how the variable were. The analysis showed that on the effect of systematic risks on market liquidity, the lagged systematic variables showed statistically insignificant coefficients (p>0.05). Therefore, systematic risks had no significant mediating effect on market liquidity risk. After including market liquidity as a predictor of stock market volatility alongside systematic risks, lagged market liquidity risk yielded a negative but statistically insignificant coefficient (β= -0.0352, p = 0.459). Therefore, effect of the mediator on stock market return volatility was not significant. This showed that market liquidity risk had no mediating effect on the relationship between systematic risks and stock market return volatility. The study concludes that market liquidity risk had no significant mediating effect on the relationship between systematic risks and stock market return volatility of firms listed at the NSE Kenya. The study recommends that the Capital Markets Authority (CMA) and NSE implement reforms to boost market depth and liquidity. The CMA and NSE should also prioritize broadening market participation through targeted investor education programs, which would help cultivate a more diverse and active investor base. Additionally, automating trade processes is strongly suggested as a means of improving execution efficiency and reducing friction in price discovery, particularly during periods of market stress.
Keywords: Market liquidity risk, systematic risks, stock market return volatility, firms, Nairobi Securities Exchange, Kenya
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