DETERMINANTS OF BOND MARKET INDEX AT THE NAIROBI SECURITIES EXCHANGE IN KENYA
Abstract
This study evaluated the determinants of the bond index at the N.S.E. The study evaluated the effects of key variables namely, interest rate, inflation and exchange rate on the market index of bonds at the N.S.E. The effect of the changes of each of the above variables on the market index was determined. The researcher employed a descriptive research design. The target population comprised of 42 investment Banks and 21 Stock Brokers at the NSE. For each category, 2 staff members were selected. Therefore a sample size of 96 staff members was chosen. The study adopted a regression of the variables against the market index of the N.S.E. The data from the study was analysed quantitatively using SPSS software version 22. Ms Excel was used to generate trend lines. The data analysed were represented using tables, graphs and pie charts in a more detailed and comprehensive manner for easy interpretation of information. The study revealed that interest rate, inflation and exchange rate were found to be satisfactory variables in bond market index. This was supported by coefficient of determination of 46.2%. Regression of coefficients results indicated that interest rate and Bond market index were negatively and significantly related (r=-0.216, p=0.006). Further, regression results showed that inflation and Bond market index were negatively and significantly related (r=-0.146, p=0.030). Trend analysis results indicate that inflation and bond market index were inversely related. Finally, Regression results indicated that exchange rate and Bond market index were negatively and significantly related (r=-0.186, p=0.011). A trend analysis between exchange rate and bond market index indicated that exchange rate and bond market index were inversely related. Based on the findings the study concluded that interest rate, inflation and exchange rate were key determinants of bond market index at the Nairobi Securities Exchange. The three variables were found to have an inverse relationship with bond market index. This study found that interest rate, inflation and exchange rate affected bond market index. It was therefore recommended that the Central Bank of Kenya identifies policy intervention to cab this situation.
Key terms: bond, Bond Market Index, Capital market, Co-integration, financial asset, Interest rate, Inflation, Exchange rate
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DOI: http://dx.doi.org/10.61426/sjbcm.v4i4.554
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