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Effects of interest and exchange rates on bank stock returns. Evidence from Kenya

Katsikas, Epameinondas, Brahma, Sanjukta, Wangeci, Susan (2015) Effects of interest and exchange rates on bank stock returns. Evidence from Kenya. In: International Conference of the Financial Engineering and Banking Society, 11 - 13 June 2015, Audencia Nantes School of Management, France.. (Unpublished) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:54192)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)

Abstract

Banks are believed to be more sensitive to interest rates risk because of a mismatch of maturities between assets and liabilities (Lloyd and Shick 1977, Faff and Howard 1999 and Kasman et al 2011). Faff et al (1999) stated that banks are more sensitive to interest rates because interest rates are directly fed into input costs, the operating margin and the demand for services by customers. Globalisation is another factor that increases exposure to interest rate risk (Kutty 2010, Choi et al 1992, Atindehou and Gueyie 2001, Kurman 2014 and Kasman et al 2011).

This research is motivated by the Portfolio Adjustment Approach theory which states that bank stock returns are positively related to exchange risk (Kutty 2010 and Tabak 2006). This theory also documents that that cash flow of foreign capital is dependent on stock prices. Higher stock prices lead to an inward flow of foreign capital into the economy and vice versa. When the latter occurs, there is a decline in demand for money that then leads to a reduction of interest rates in an effort to increase the demand. As a result foreign country investment increases to take advantage of lower interest rates consequently leading to depreciation of the local currency.

The key contributions of this research are the following: This is the first research in Kenyan context to empirically examine effects of both interest and exchange rates on bank stock returns. This is also the first research to examine this relationship during the 2007-2008 election violence period.

Item Type: Conference or workshop item (Paper)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Epameinondas Katsikas
Date Deposited: 14 Feb 2016 23:34 UTC
Last Modified: 29 May 2019 17:00 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/54192 (The current URI for this page, for reference purposes)
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