Effect of Low Price Anomaly on Stock Market Returns at the Nairobi Securities Exchange
Abstract
Stock market anomalies are deviations from norms in the asset pricing models. They reveal the inefficiencies which exists in the financial markets around the globe. They reveal the inefficiencies in the market concerning the prices of stocks, explains anticipated asset profitability. This study investigated the effect of the low-price anomaly on stock market returns of firms at the Nairobi Securities Exchange. It employed descriptive design. Total population for the research entailed the 64 firms listed at NSE. Secondary data was the method preferred for data collection covering a period of 1 year from January 2016 to December 2016. All stocks were sorted based on the price (P) at a given time to arrive at three separate portfolios of equal sizes; a low-priced portfolio, a mid priced portfolio and a high-priced portfolio. The researcher determined the selection of the cut off prices subjectively. The obtained calculations on low price anomaly were regressed against the calculated market portfolio returns to establish the relationship using MS excel. The coefficient results established that the relationship between the returns on the low priced security and the returns of the market was positive and significant. The results further revealed that the relationship between the returns on the mid priced portfolio the return of the market was negative and significant. However, the findings revealed that the correlation linking market returns and the returns of the high priced portfolio was negative and insignificant. The study concluded that low and mid priced securities have a significant affect stock market returns of the firms listed at NSE. Study recommended that the management of the NSE should encourage investors to invest in low and mid priced securities since they influence the stock market returns
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: