An Investigation Into The Relationship Between Risk And Return Of Companies Listed Under The Various Market Segments: The Case Of The Nairobi Stock Exchange"

Abstract

The principal objective of this study was to establish the whether there exist any difference in terms of risk and returns o f companies listed in under two market segments namely ; the main investment market segment at the Nairobi Stock Exchange. These companies had previously opened in the same market under similar requirements until June 2000 when they were re-classified into segments i.e the Main Investment Market Segment and the Alternative Investment Market Segments. The study utilized historical market data collected from the Nairobi Stock Exchange for the period between January 1996 to December 2000. Individual companies' Sharpe Ratios for the entire period were computed and analyzed. Difference between Sharpe Ratios of companies listed under the Main Investment Market Segment and those of companies listed under the Alternative Investment Market , segment were analyzed using Wilcoxon Rank Sum test The research found out that there exist no significant difference in tenus or IL'tUJ n and risk between those companies listed under the 1ain Investment 1arkct Sc 1ment and those listed under the Alternative Investment l tmk l \:1-!mcnt at the airobi Stock Exchange The research therefore concluded that the companic. lisiL'd undc1 the two different segments mentioned above the same in terms of performance ans measured by risk and return. In conclusion therefore, the failure by NSE market segmentation to address the interest of the consumer (rational investor ) who consider the risk and return performance of the securities s as the basis of selecting procedure (securities), lead to effective segmentation