Central Bank Rate Changes Announcement Effect on Stock Returns of Firms Listed at the Nairobi Securities Exchange, Kenya
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Date
2023-11
Authors
Amollo, Florence Adhiambo
Ndede, Fredrick W. S.
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
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 and downward announcement of central
bank rate on stock returns of firms listed at the
NSE. 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 and
Liquidity preference theory. Stratified
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
study findings established 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.
Description
Article
Keywords
Central Bank Rate Revision and Stock Market Returns
Citation
Amollo, F. A., Ndede, F. W. S. (2023). Central bank rate changes announcement effect on stock returns of firms listed at the Nairobi Securities Exchange, Kenya. International Academic Journal of Economics and Finance, 4(1), 48-70