| dc.description.abstract | The study sought to determine the predictability of ordinary stock return,
for selected securities listed on the NSE using recursive least squares
regression.
Monthly closing prices (mode price) for the selected securities were used to
obtain dividend yield and earnings price ratio, which were exogenous
variables in the model. The other independent variables in the model are
Monthly Treasury bill rate, Month -on -month inflation rate, monthly
percentage change in broad money supply and monthly percentage
change in export earnings from coffee and tea as a measure of agricultural
production. The period of study was January 1995 to December 2002
Although there were no significant differences between actual and forecast
values generated by the model, we conclude that the predictability
evidence for ordinary shares in the NSE is weak and not conclusive. This
is due to the fact that only three samples had statistically significant
sensitivity measures (coefficients) of the variables used in the model.
Besides, the proportion of explained variations (R2) in ordinary stock
return was low ranging from 3.8% to 20.9%. The implication of this
finding to financial analysts is that at the end of the day, not all the
variations in ordinary stock returns can be explained by changes in
various macroeconomic indicators. This in turn confirms the assertion of
Shiller (1989) that Short-term changes in stock market indexes may well
be influenced by what he termed 'investor psychology'; and what other
scholars such as Williamson (1993) have called 'herdlike' behaviour of
investors in investment decision-making. | en |
