CENTRAL BANK RATE CHANGES ANNOUNCEMENT EFFECT ON STOCK RETURNS OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
CENTRAL BANK RATE CHANGES ANNOUNCEMENT EFFECT ON STOCK RETURNS OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Florence Adhiambo Amollo - Student, Master of Business Administration (Finance), Kenyatta University, Kenya
Fredrick W. S. Ndede - Lecturer, Department of Accounting Finance, Kenyatta University, Kenya
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.
