PER CAPITA INCOME AND DERIVATIVES MARKET DEVELOPMENT: EVIDENCE FROM THE NAIROBI SECURITIES EXCHANGE, KENYA
Abstract
Purpose of the Study: This study examined the influence of per capita income on derivatives market development at the Nairobi Securities Exchange (NSE) in Kenya. It investigated how economic capacity, proxied by per capita income, affects investor participation, trading volumes, and market depth.
Statement of the Problem: Although the NSE has introduced derivatives instruments, market uptake remains low, with thin trading volumes and limited retail engagement. Previous research suggests that macroeconomic variables, including per capita income, influence financial market participation (Park & Mercado, 2018). However, limited empirical evidence exists on how per capita income affects derivatives trading in Kenya’s emerging market context.
Research Methodology: A quantitative research design was implemented, surveying 110 institutional and retail investors engaged in derivatives trading. Stratified and purposive sampling ensured representativeness across investor types. Primary data were gathered through structured questionnaires measuring economic capacity and trading behavior, while secondary market data were sourced from NSE and Capital Markets Authority (CMA) reports. Regression analysis tested the influence of per capita income on market development.
Findings: Results indicate a significant positive relationship between per capita income and derivatives market development (R² = 0.58), showing that higher income levels explain a substantial proportion of variation in market activity. The model confirms that increases in per capita income significantly enhance participation rates, trading volume, and instrument diversification.
Conclusions: Per capita income is a critical determinant of derivatives market development at the NSE. Investors with greater economic capacity exhibit higher risk tolerance and stronger engagement with sophisticated financial instruments.
Recommendations: The study recommends that policies should focus on boosting household and institutional income, promoting financial inclusion and enhancing investor education to broaden participation. Tiered trading products catering to varying income levels should be introduced to improve market depth.
Keywords: Per Capita Income, Derivatives Market Development, Economic Capacity, Financial Inclusion, Nairobi Securities Exchange, Kenya
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