Abstract 

 

The Impact of Monetary Policy on the Stock Market Activity
Study on the Amman Stock exchange   during the period (1978-2009)
Nassima Omrane Cherrati
Mutah University, 2011

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         This study aims to explore the impact of monetary policy on the Amman Stock Exchange Activity in Jordan for the period (1978-2009). Monetary policy was represented by the variables: money supply, interest rate on term deposits and interest rate on loans, Whereas Amman Stock exchange activity was represented by: stock price index, volume of trading and turnover ratio.

    To achieve this objective, the study used the following tests: stationary test for variables, stability test for models, and causality test. The study also used vector autoregression (VAR)   method to estimate three models.

      The results of the study showed:

-Unidirectional causality from the money supply, interest rates on term deposits, interest rate on loans, workers' remittances and inflation rate to volume of trading and turnover ratio. 

-Bidirectional causality between the money supply and interest rate deposits on one hand, and stock prices on the other hand, and a one –way of causality going from inflation rate to stock prices.

-the presence of a negative short-term relationship between the interest rate on deposits, interest rate on loans and workers ‘remittances on one hand, and the Amman stock market indicators on the other hand, As well as this relation was positive concerning money supply, however the inflation rate is appeared to have a positive impact on the stock index and the trading volume, and negative impact on the turnover ratio, but its impact was statistically insignificant regarding trading volume and the turnover ratio.  

-the most influential factors on the Amman Stock are money supply and interest rates on   deposits  .

           The study recommends that the monetary authority should take into consideration the effects caused by changes in money supply and interest rates on the securities market activity, raise the level of the Amman Stock Exchange efficiency, encourage and propagation of investment in Amman Stock Exchange locally and broadly                                    .                                                                                         
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Key words: Monetary policy, Amman Stock Exchange, Stock Price Index, Volume of trading, Turnover Ratio, Vector Autoregression Model (VAR).