Turn Of The Month Effect On The Return Of Fixed Income Securities At Nairobi Securities Exchange

Abstract

The existence of random movements that are associated with prices of financial securities in the market has forced investors to rethink their investment strategies to beat the market and earn abnormal profit. However, one challenge investors face is how to determine the effective time of the year, month or week that the market tend to perform better than any others and what factors contributes to this. These differences in the market can be explained using the concept of market anomaly. There are various types of market anomalies and the most common ones are calendar effect (CE), day of the week (DoW) and turn of the month effect among others. As a result of these anomalies in the market, returns of the financial securities tend to vary over time due to information which does not reach all market participants at the same time. The purpose of this study was to establish the turn of the month effect on return of fixed income securities at Nairobi Securities Exchange (NSE) and to answer the research question; what is the effect of the turn of the month on return of fixed income securities at NSE? The study used descriptive research design since the study aimed to detect empirical evidence from the fixed income security data at the NSE. The study used the data for the 8 participants of fixed income securities at NSE as from 2013 – 2017. The study collected secondary data on coupon rates, prices, face value and then calculated fixed income indices and returns (change in fixed income prices). In order to effectively estimate the ToM effect, the study carried out a t-test to test if there was a statistical significant difference in the mean returns. Based on the results obtained from the analysis of the study, the study established that there was no statistical significant difference in mean returns between ToM for both 5 – days and 9 – day effect and rest of the month (RoM). The study recommends all investors to have a closure look at the factors affecting returns of fixed income securities before investing and deploy effective strategies that can help them earn profit. Research further recommends future studies on similar topic in order to provide more empirical review since most previous studies have concentrated on stock market. Also, other studies could be done on CE and turn of the week effect on fixed income securities returns.