Effects of Market Momentum on Fund Manager Returns at the Nairobi Securities Exchange

Abstract

The purpose of the study was to assess the effects of market momentum on fund manager returns at the Nairobi Securities Exchange. The target population involved eighteen fund managers registered by the RBA. The study investigated the effect of three control variables (age of the firm, size of the firm and agency costs) and independent variable (momentum) on fund manager returns, the dependent variable in the study. The study sampled literature across the globe on previous studies done on the topic and the research gap was identified, necessitating further studies on the topic. The research design is the cross sectional method and secondary data was obtained from financial statements and relevant financial publications for data collection. The descriptive study was conducted on the data collected regarding the age of the firm, size, and the agency costs as control variables. The control variables and the independent variable, momentum, were examined by computing the mean, standard deviations, kurtosis and skewness. The results were then tested to establish if there were significant relationships among and between the variables. Data was then presented in tables for various types of analysis such as correlation, regression and collinearity diagnostics. The study concluded that there was negative correlation between the various predictors (control variables) and fund managers’ returns. A unit increase in the control variables results into decrease in the return on equity by varying extent based on the individual control and independent variable. According to the study findings, there was a significant relationship between the variables under study. The factors were found to be linearly related and a change in one variable impacted on the other variable although to a small extent under 5% significance level. The study recommended an introduction of a specific benchmark level of the index to help trace price momentums and also facilitate proper decision making. It also recommended a longitudinal study rather than cross section to establish the possibility of other factors such as political instability impacting on the fund manager return on equity. There are possibilities that other factors could impact returns on equity; this study found that a similar research be conducted under different political environment and structural factors in the securities market to establish variability in the two study findings and their impact on fund manager returns.