Abstract:
The influence of exchange rate and inflation on stock market returns in Tanzania was investigated using
monthly inflation and exchange rate data from the BOT and NBS, as well as monthly market returns from
the DSE, over the period 2011 to 2020. This effect was investigated using the autoregressive distributed
lag (ARDL), cointegration approach, and the error correction parameterization of the ARDL model. The
results from the analysis show that in both the short-run and long-run, stock market return is impacted by
inflations rate and exchange rate. Moreover, the empirical results demonstrate the significant negative
impact of inflations rate and exchange rate in long run on stock market return while there is positive impact
between stock market return and exchange rate and inflation at short run on the basis of the above analysis
it can be conclude that two selected macroeconomic variables are relatively significant and likely to impact
stock market return of the Dar es salaam stock exchange basing on their coefficients and their significance
relationship both in short and long run impacts of which its consistence with theories .The outcome of this
thesis discovered potential need to focus on impact of macroeconomic variables in designing monetary
and fiscal policy of the country’s economy, since; the capital market does respond quickly to the arrival of
new information.
