Macroeconomic Variables and Stock Market Prices in Tanzania: An Empirical Investigation

Understanding the effect of overall macroeconomic variables on stock prices is fundamental to the development of proper capital and money markets. This study empirically investigates the impact of macroeconomic variables on stock prices for the listed firms in the Dar es Salaam Stock Exchange (DSE) for the year 2004 to 2024 by pooling together stock prices and selected macroeconomics variables. Findings revealed that the real interest rate and real exchange rate both have statistically significant and positive effects on stock prices, showing that increases in these factors are associated with higher stock prices. The coefficient for inflation rate was found to be not statistically, implying no strong relationship. These results, therefore, show that interest rate and exchange rate positively and significantly affect stock prices, suggesting that a shock increase in either or both economic variables is positively associated with increased stock market values. This study provides a theoretical contribution by integrating Arbitrage Pricing Theory, the Efficient Market Hypothesis, Monetarist Theory, and Flow-Oriented Theory to explain the intricate relationship between macroeconomic variables and stock price movements. Furthermore, laws and regulations governing the operations of the stock exchange in the country should be strengthened to protect the interest of buyers and sellers on the stock market. This will increase the confidence of investors as well as boost domestic investor participation and enlarge stock ownership base in the economy.