Do macroeconomic variables really matter in explaining stock market returns in Tanzanian Stock Exchange Market?

Abstract

The behaviour of stock markets is characterized by volatility of macroeconomic fundamentals which cause stock prices to move upwards and downwards within a short period of time. Therefore, the current paper examines the effect of macroeconomic variables on stock market returns of firms listed at Dar es Salaam Stock Exchange market. This study used time series data of macroeconomic variables collected from Central Bank of Tanzania and National Bureau of Statistics from 2011 to 2021.The error correction model was used to check the strength of the relationship between the selected macroeconomic variables and stock market returns. The results show that the selected variables have significant effect on the stock market returns. Inflation, Broad Money Supply and Interest rate appear to have positive impact on stock market returns. However, exchange rate reports negative impact on the stock market returns. The findings of the study provide policy insights about the drivers of the stock market returns volatility to enable policy makers to design the effective macroeconomic policies that will help with predicting the pathways to economic growth.