The relationship between stock market return and monetary policy decisions in Kenya.
Abstract
This study sought to examine the relationship between stock market returns and monetary policy
stance in Kenya using time series data for the period 2003 to 2013. The study employed the
ordinary least square method and conducted appropriate diagnostic test to ensure validity of the
findings. Estimated results showed that money supply multiplier has a positive and significant
influence on stock market returns. The results revealed that treasury bills rate, cash reserve
requirement and Repo rate as indicators of monetary policy do not significantly influence
Kenyan stock market returns.
An important policy implication of this research paper is that government through the monetary
authorities in the country (CBK) can enhance the wealth of investors in the stocks market by
influencing the money supply multiplier which positively and significantly influences stock
market returns. This can be achieved if the monetary policy committee focuses on the money
channel of monetary policy transmission which assumes that changes in reserve money are
transmitted to broad money though the money multiplier. The emphasis should be on the use of
reserve money as the operating target and broad money as the intermediate target in monetary
policy implementation process if the government to achieve policy goals of output and financial
stability. Broad money (M2) and reserve money should be seen as important policy instruments
of promoting stock market growth in the country.
Citation
Degree Of Master Of Arts In Economics,2014Publisher
University of Narobi