Effect of human development index on stock exchange performance in Kenya: A time series analysis (2009–2023)

Résumé

This study examines the Human Development Index (HDI) as a factor influencing Kenya's stock exchange performance, utilizing quarterly data from 2009 to 2023. It presents the HDI, a composite measure of health, education, and income, as an indicator of structural development in market analysis, moving beyond traditional macroeconomic variables and their relationships. The authors employ the Autoregressive Distributed Lag (ARDL) model after confirming that the variables are integrated in order one, I(1), through the ADF and KPSS tests. Correlation analysis reveals a very strong, statistically significant negative relationship between HDI and the NSE 20 Share Index (r = −0.6761, p < 0.01). The ARDL regression further confirms a significant short-term negative effect of HDI on stock performance, with a negative coefficient (β = −5.5517, p < 0.01). However, a long-term co-integration relationship was not identified using the bounds test. Diagnostic tests verify that the model is stable, normally distributed, and free from multicollinearity and serial correlation. This data indicates that while human development is essential for the long-term growth of an economy, in the short term, it affects investor sentiment and fund allocation, especially in a transitional market like Kenya. The study contributes to endogenous growth theory by framing human capital as a dynamic, potentially disruptive force, and it critiques the efficient market hypothesis by demonstrating how development information may not be immediately reflected in emerging market prices. The policy recommendations emphasize the importance of integrating development strategies with market literacy and stability initiatives.