MST-Department of Accounting and Finance

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Browsing MST-Department of Accounting and Finance by Author "Amollo, Florence Adhiambo"

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    Central Bank Rate Changes Announcement Effect on Stock Returns of Firms Listed at the Nairobi Securities Exchange, Kenya
    (Kenyatta University, 2023-06) Amollo, Florence Adhiambo
    Stock returns in the Nairobi Securities Exchange (NSE) are influenced by a multitude of factors, one of which is the monetary policy set by the Central Bank of Kenya (CBK). The CBK, like central banks in other countries, plays a significant role in shaping economic conditions that can impact stock market performance. The CBK sets the benchmark interest rate, often known as the Central Bank Rate (CBR). Central banks on the other hand are legally required to make announcements regarding its policy intentions. Stock returns are often a motivator for investment in the stock market. The stock returns of firms listed at the Nairobi Securities Exchange however, has not been impressive in the recent past due to factors such as listing drought, investor sentiments due to unpredictable returns among others. The study aimed to investigate the relationship between central bank announcements of changes in rates and stock market returns of selected firms listed at the Nairobi Securities Exchange. The specific objectives were to; establish the effect of upward announcement of the central bank rates on stock returns of firms listed at Nairobi Securities Exchange, find out the effects of downward announcement of central bank rate on stock returns of firms listed at the Nairobi Securities Exchange and determine the effect of fixed of central bank rate on the returns of the stock of firms listed at Nairobi Securities Exchange. The study was guided by various theories to explain the relationship between the changes in the central bank rate announcements and the stock market returns including the Interest rate theory, Liquidity preference theory and efficient market hypothesis theory. The study targeted 63 listed firms at the NSE. A total 20 firms were sampled based on market capitalization, liquidity and financial health. The purposive sampling technique was adopted for the selection of the respondents from a population of firms listed at Nairobi Securities Exchange. The collected data was analyzed using econometric views software (EVIEWS). The researcher obtained authorization letter from the school of Business, Economic and Tourism of Kenyatta University and research permit from National Commission for Science Technology and Innovation (NACOSTI). The study findings established that regression of coefficients results indicate that the variable market return had a positive and significant relationship with the actual stock return, which is evident from the value 0.002. Also, the findings revealed that upward revision Central Bank Rate has negative effect on stock market performance with a P-value of -0.002. The findings show that fixed central bank rate have zero significant impact on stock returns with a P-value of 0.000. Also, the findings show the down revision of the CBK rate positive impacted the stock return with a P-value of 0.001. The study concludes that upward revision of central bank rate negatively impacted the stock returns of firms listed at NSE. The fixed central bank rate has zero significant impact on stock returns. Fixed rates provide greater certainty for firms listed at NSE in Kenya. The study concludes that down revision of the CBK rate impacted the stock return. The study recommends that the Central Bank of Kenya and the Monetary Policy Committee should maintain the CBR at reasonable levels. Minimal volatility on the CBR should be maintained so as to reduce the volatility of the stock market performance. Nairobi Securities Exchange regulators should encourage market activities and policies which will improve the market’s efficiency, so that the changes in CBR may have minimal or no effect on stock returns of listed companies within the market.