Effect Of Treasury Bill Rates On Capital Market Development: A Case Of Nairobi Securities Exchange

Abstract

Across the globe, the Capital markets operates in an environment which has the capability of influencing its operations, development and its overall productivity. This study objective was based on establishing the effects of treasury bill rates on the development of capital markets in the Nairobi Stock Exchange. The Capital Market development as a dependent variable was measured by the market capitalization rates from the year 2015 to 2019. The independent variable factored in the study was the Treasury Bill rates. The control variables were: rate of inflation, rate of exchange and the interest rate. The study made use of secondary data from the Kenya Bureau of Statistics, Capital Markets Authority and the Central Bank of Kenya. Data was analyzed on the basis of Mean and Standard deviation, The F-Test statistic was 4.647 at 0.003 Significance level which shows regression model used was significant. From the regression model it was found out that the selected macroeconomic variables namely, treasury bill rates, inflation rates, interest rates and exchange rates influenced capital market development. The investigation established that the independent variables explains 30.2% of the capital market development and that the treasury bill rates affects negatively the development of the capital market whereas the inflation rates, interest rates and the exchange rates have a positive relationship with the capital market development. The study concluded that the selected macroeconomic variables do not significantly affect the capital market development in the Nairobi Stock Exchange. The study recommends the government and respective agencies involved in the planning and allocation process to devise more recent methodology in encouraging the general public and investors to increase their volumes in investment in the treasury Bills rates.