Stock price responses to earnings announcements: Evidence from the Nairobi Stock Exchange
Abstract
The main objective of this study was to investigate the responses of stock price to
earnings announcements as evidenced in the Nairobi Stock Exchange (NSE).
The study is structured into five chapters. Chapter 1 provides the background and
theoretical framework of the research. Chapter 2 examines prior researches done
on this field and their reported findings. Chapter 3 discusses the research
methodology employed, while chapter 4 provides the data analysis, findings and
their interpretations. Chapter 5 contains the conclusion, limitations and
suggestions for further research.
The study samples 16 companies out of a population of 48 listed companies at the
NSE, covering the period 1998- 2003. By use of cumulative average residuals,
weekly share price indices are computed over the 17 week "window" period.
Regression statistics were generated including graphical presentation to capture
the stock price adjustments to successive annual earnings announcements.
The results of the study s how that the earnings announcements contain relevant
information to investors which are fully impounded in stock prices prior to or
almost instantaneously at the time of announcement. The year 2003 was an outlier
which evidenced existence of momentum in stock returns. This corroborates the
study by Jegadeesh & Titman (1993) who examined a cross section of US stocks
and found that over the six months horizon the stock returns were positively auto
correlated and interpreted this as evidence of a momentum in stock returns.
A secondary evidence resulting from this study is the conclusion that NSE shows
presence of semi strong model of EMH. This is contrary to early evidence adduced
by a study done by Ondigo (1995). Further research on the information content of
other public data to gather sufficient evidence for the SSMEMH is needed to
support this conclusion.
Citation
A Management Research Project Report Submitted in Partial Fulfillment for the Requirements of the Degree of Masters of Business Administration (MBA), School Of Business, University Of NairobiPublisher
Business Administration