Effects of Momentum Strategies on the Financial Performance of Listed Companies at Nairobi Security Exchange

Abstract

The ability of investors to make above normal returns is dependent on how they develop their investment strategies and align them with market trends. Price volume momentum is one such strategy. The use of past information on price and volume patterns has been a subject of past research. From the studies, it is clear that price patterns can be used to explain future returns. However the usefulness of past volume information has generated considerable debate, with some scholars arguing that there’s no relationship between past volume information and stock returns in the future. Conversely, others have argued that it is stock returns which inform volume whereas some argue that there’s no relationship between volume information and stock returns. The general objective of this study was to determine the effects of momentum strategies on the financial Performance of Listed Companies at Nairobi Security Exchange. From regression results momentum strategies, firm size, leverage and liquidity explain 57.8% of the variations in the dependent variable which is financial performance. In addition, there was a positive and significant relationship between momentum strategies, firm size and leverage. However, liquidity had a positive and insignificant effect on financial performance. The study findings revealed that momentum strategies have a positive and significant effect on financial performance of firms listed in NSE. The study concluded that momentum strategies have a positive significant impact on financial performance of firms listed in NSE. The study concluded that liquidity have a positive insignificant impact on financial performance of firms listed in NSE. The study also concluded that financial leverage has a significant impact on financial performance of firms listed in NSE. The study also concluded that firm size have a positive significant impact on financial performance of firms listed in NSE. The study recommends that to facilitate favorable growth of these NSE firms, strategies to facilitate increased liquidity of NSE firms should be adopted by the firms for their efficiency in financial operations. The study recommends that the management of the firms listed in NSE firms should ensure they hold adequate level of financial leverage to ensure that they do not affect other functions of the firm. The study recommends that top management of listed firms should set up strategies of growth and expansion in sizes for example growth in market segments and shares. One way of achieving growth may be through mergers and acquisition where a small firm in a small industry can decide to merge with another larger firm resulting into one large firm that commands the entire large market. This will help to boost the performance of the firms.