Relationship Between the Turn-of-the-month Effect and Stock Returns of Commercial Banks Listed at the Nairobi Securities Exchange

Abstract

This research studied the relationship between the turn-of-the-month effect and stock returns of commercial banks listed at the Nairobi Securities Exchange. The objective of the study was to assess the relationship between turn-of-the-month and stock returns of the banking sector at the NSE for a period of 5 years (2013 to 2017). A descriptive research design was used together with a logistic regression analysis. The population of the study was made up of 10 commercial banks. Secondary data was used in this study and that consisted of the daily stock returns of listed commercial banks. This data was analyzed statistically to determine the presence of turn-of-the-month effect in the banking sector. The last day of the month and the first three days of the following month were used as TOM days. A paired T-test with a 5% level of significance was carried out on the mean returns of TOM days and ROM days to establish if there is a relationship between turn-of-the-month effect and stock returns in the banking sector at the NSE. From the results of the logistic regression analysis and the paired T-test, it was established that the banking sector did not exhibit the presence of turn-of-the-month effect. Investors should take note of this and conduct thorough investigations on price movements during TOM days and ROM days before deciding when and where to invest with reference to market anomalies. The results of this study imply that the banking sector and regulatory authorities have put in place measures that counter the turn-of-the-month effect. This should also be applied on other sectors to curb market anomalies so as to ensure an efficient market.