Effect of Monetary Policy Instruments on Stock Market Returns at Nairobi Securities Exchange
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Date
2013-11Author
Machasio, Immaculate N
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The purpose of this study was to investigate the effect of Monetary Policy Instruments on Stock
Markets in Kenya specifically at The Nairobi Securities Exchange Market using annual data
from 1998 to 2012. Causal Research Design was used to analyze data using Statistical Product
and Service Solutions (SPSS). The software was run using three monetary policy variables
including treasury bill rate, Money Supply(M1) and consumer price index (proxy for inflation)
on the Stock Market Returns (proxied by NSE 20 share price index).
The general result of the analysis showed a strong correlation between monetary variables and
Stock Market Returns. All the explanatory variables are positively related to Stock Market
returns except treasury bill rate which has a negative relationship with stock market returns.
Increase in CPI and Money Supply M1 causes a corresponding increase in Stock Market returns
whereas an increase in Treasury Bill Rate causes a decrease in Stock Market Returns. The study
has revealed that monetary policy has made significant influence over the prices of ordinary
equities in Kenya and thus effectively on the returns. This implies that the equities market has
significantly absorbed the monetary policy impulses and therefore the project confirms earlier
studies done on the same topic regarding effect of Monetary policy on stock markets.
It would be important therefore to consider monetary variables as an important factor in
determining stock market movements. Utmost care should be taken in designing monetary
policies as it has a direct impact on cash inflows into the capital market and on the stability of the
capital market and as such policy makers need to be aware of the need to encourage investors.
Citation
Machasio,Immaculate N.;November,2013.Effect Of Monetary Policy Instruments On Stock Market Returns At Nairobi Securities Exchange.Publisher
University of Nairobi School of Business