The Effect Of Interest Rate Adjustment Announcements On Stock Market Returns At The Nairobi Securities Exchange

Abstract

The behavior of security prices has been a central area of study over the years. Investors are keen on this behaviour as it provides them with information, which enables them to make choices on types of shares to purchase, hold or sell in order to maximize their returns. The connection between rates of interest adjustment announcements as well as stock returns has been the topic of much empirical investigation and speculation. The relationship between the two is of interest not only to economic theorists but also to investors who have to grapple with issues regarding asset allocation and market timing. The research pursued to establish the effect of rates of interest adjustment announcements on stock revenue of corporations registered at the NSE and adopted a descriptive design using the event study methodology. The populace in this research was a census of all the corporations recited at the NSE. From the study findings, it is completed that the stock market returns continues to expand with the levels of NSE 20 Share Index increasing over the years under study with minor fluctuations. The rates of market returns do not correspondingly increase as there are instances of increase in market returns and other instances of decline in the market proceeds. The study established a positive connection between return on stock market and rate of interest. This leads to the conclusion that interest rates adjustments significantly affect the stock income of corporations registered at the NSE. The positive association between rate of interest and market yields is not consistent with the literature on finance, development and growth. Government policy makers should develop policies that manage the interest rates at acceptable levels that encourage borrowing for private investments. This should be attained through legislation and availing cheaper sources of deposits for lenders. Market return is synonymous with economic growth.