MACROECONOMIC VARIABLES, SECTORAL INDEX VOLATILITY, AND INVESTOR SENTIMENT AMONG LISTED FIRMS AT NAIROBI SECURITY EXCHANGE, KENYA

Purpose: From a broader perspective, it is generally accepted that every investor aims to maximize return on their investment. To achieve this, the security market has significantly attracted so much interest from numerous stakeholders around the globe. However, it is difficult to forecast the stock index volatility exhaustively since it is triggered by different factors, which erode the investors’ confidence. The impact of volatility in the stock market is not the same (Liu et al., 1998), and it is transmitted from one sector to the other. Therefore, this study seeks to establish the relationship between the selected macroeconomic variables sectoral index volatility after introducing the moderating effect of investor sentiment. Methodology: This review employed Systematic review research design to trace, gather and appraise relevant studies that address the relationship between the dependent and independent variables. Findings: The outcomes of the study review the existence of a conceptual framework gap as empirical literature does not offer conclusive results on the sectoral index volatility and how it is influence by macroeconomic variables and investor sentiment. Previous studies were majorly conducted at a different time period in other markets presenting a geographical gap, and without factoring sectoral perspective. Unique contribution to theory, practice and policy: The study will be beneficial to investors in portfolio formation for diversification purposes. The models developed from this study will aid the capital market authority and government to regulate listed firms in Kenya to develop policies that minimizes return volatility. The study will add new knowledge on sectoral index volatility to maximize market returns for listed firms in Kenya.