Relationship between government budget balance and stock market return for companies listed on the Nairobi Securities Exchange

The objective of this research was to determine the effects of government budget balance on the performance of the securities listed on the Nairobi Securities Exchange. This study was carried out to find out wheather investors can capitalize on the expected changes in the deficit as they make their investment and make better treturns. The study focused on the period between 2002 to 2012 as this period reflect when we had one government in place and yet the data points were sufficient to carry out the study. The study was carried out through the analysis of the NSE 20 share index performance over the period under review and the end of quarter budget balances for the same period. The analysis of the data is through the help of the spreadsheet to view any major correlations and the interpretation of key trend analysis. Also SPPS package was used to come up with the regression equation and calculate the correlation coefficients of the data. From the study it was clear that there exists a weak negative relationship between the budget balances and the performance of the companies listed on the Nairobi securities exchange. This could be attributable to the time required to collect and to rightly interpret the data on budget balance and to use it for any investment purposes. From this study and previous studies it was clear that the performance of the stock market were influenced by more than one factor. Usually some of this factors are quantitative for example the budget deficit which we sought to study while others were not for example investors emotions and confidence levels.