The effect of monetary and financial variables on share prices of Jordanian commercial banks

Abstract

This study aims to examine the effect of monetary and financial variables on share prices of Jordanian commercial banks for the period 2001–2018. The monetary variables used in the research include broad money supply, the interest rate on time deposits and inflation, while financial variables include both the deficit of the general budget and government expenditures, and the general government domestic debt. A multiple linear regression equation is designed using E-Views program to test this effect. The study shows that there is a significant positive effect of broad money supply, whereas a negative effect of the general budget deficit and a positive effect of the domestic debt on share prices of commercial banks in Jordan for the specified period. In contrast, there is no effect of both inflation and the interest rate on time deposits and government expenditures on the price of shares of Jordanian commercial banks. The study recommends taking into account the relationship between the variables mentioned in the prices of shares of commercial banks when setting monetary and financial policies by the central bank and the government to determine the extent to which these variables reflect share prices of Jordanian commercial banks. Overall, the regression model reached R2 = 0.63, and this means that 63% of the change in the share prices of Jordanian commercial banks is due to changes in the independent variables included in the model.