The Impact of Treasury Bill Rate on Stock Market Returns: A Case of Dar Es Salaam Stock Exchange

Abstract

This study examined the impact of Treasury bill rates on stock market returns at the Dar es Salaam Stock Exchange (DSE), incorporating the moderating effects of GDP growth, inflation, and the exchange rate. It specifically analyzed how 91-day, 182-day, and 364-day T-bill maturities influenced stock performance through short and long-run dynamics. A quantitative explanatory design was employed using quarterly time-series data from 2013–2024. Econometric analysis utilized the Augmented Dickey–Fuller test, Johansen Cointegration test, and Vector Error Correction Model (VECM). The results showed that Treasury bill rates had no significant short-run effect on stock market returns. In the long run, however, T-bill rates exhibited a mild positive relationship with stock returns (β = 0.079, p < 0.05), suggesting that higher yields on longer maturities may signal an improved economic outlook. GDP growth demonstrated a strong negative long-run effect on stock performance (β = -0.452, p < 0.01), while the exchange rate emerged as a dominant positive predictor in extended models. Inflation showed a positive but statistically insignificant effect. The study concluded that macroeconomic fundamentals particularly exchange rate movements and GDP dynamics play a more substantial role than short-term interest rates in shaping stock market behaviour in Tanzania. It recommended that investors and policymakers prioritize macroeconomic stability and consider the unique dynamics of frontier markets when formulating investment and monetary policies.