Abstract:
The main objective of the study was to assess the determinants of stock return volatility
during COVID-19 Pandemic using a case of Dar es Salaam Stock Exchange (DSE). The
specific objectives of the study were to examine the exchange rate, interest rate and
inflation rate in determining stock return volatility. A quantitative research methodology
was employed, utilizing secondary data from the DSE during the period of the COVID-
19 pandemic. All the 28 listed companies (22 local companies and 6 cross-listed
companies) were studied. Documentary review was employed for data collection.
Descriptive and inferential statistics analysis were employed for data analysis. It was
revealed strong positive correlations between stock return volatility and the three key
economic variables. It was further found that as interest rates fluctuated during the
pandemic, there was a corresponding increase in market volatility. Similarly, exchange
rate fluctuations were found to be strongly correlated with stock return volatility. Inflation
rates exhibited the highest correlation with stock return volatility, indicating that rising
inflation during the pandemic contributed significantly to stock market instability.
Furthermore, it was found that the determinants are interconnected implying that changes
in one economic factor, such as an adjustment in interest rates, may indirectly affect stock
market volatility through its impact on other factors like inflation and exchange rates. It
was concluded that, the interest rates, exchange rates, and inflation rates factors are
interrelated, and changes in one can have cascading effects on stock market stability. It
was recommended that policymakers should adopt a more coordinated approach to
managing interest rates, exchange rates, and inflation, as these factors are highly
interdependent. Also, a holistic approach was recommended to economic management to
help in mitigating the volatility that often accompanies economic crises. In addition, it
was recommended that it was crucial for the Bank of Tanzania and the government to
enhance market transparency and investor confidence, particularly during crises like the
COVID-19 pandemic
