Abstract:
In this paper, we explore the dynamic relationship between aggregate
foreign
equity
inflows
and
aggregate
liquidity
of
the
Kenyan
stock
market
using
transactional foreign trading data and several liquidity measures. We
employ vector autoregression with monthly gross foreign inflows, local stock
market liquidity and returns over the period 2011–2018. We discover a one-
way causality link from inflows to liquidity and that foreign investors promote
rather than impede local liquidity. Our analysis therefore renders support to
the recent policy by Capital Market Authority of Kenya that now allows foreign
investors to acquire up to 100% of any stock listed at the Kenyan stock
exchange market.
