Day of the week effect and bond market returns at the Nairobi securities exchange
Murigu, Peris W
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The objective of the study was to find out whether there exists a relationship between bonds returns and the day of the week at the Nairobi Securities Exchange (NSE). It also sought to determine if there is a significant difference in bond returns for all the five trading days. The relationship between information and bond prices is explained by the market efficiency. By the day of week effect, the investor will consider the mean of return for different days. In a decision making process, a rational financial decision maker must take into account not only returns but also the variance and volatility of returns. The underlying constituents of the bond market are based on Kenyan Government Securities quoted on the NSE with maturity levels of more than one year and notional amounts above KES5 billion. The bonds market in Kenya involves both the treasury and corporate bonds. The study was based on the corporate bonds issued at the Nairobi Securities Exchange. A descriptive research design was used in the study. It involved gathering daily bond prices from the Nairobi Stock Exchange and analyzing the data statistically to determine the existence of the day of the week effect on bond returns at the NSE. The population of interest in the study consisted of eleven firms which had issued bonds at the NSE as at 31st December 2013. Their mean returns were used to investigate the relationship between the day of the week and bond returns at the NSE. The data comprised of the daily bond prices. The results show that there is a significant relationship between the dependent variable which is the bond market return and independent variables which are the five days of the week. From the analysis, we can conclude that Tuesday had the highest return than any other day of the week. Wednesday on the other hand, had the lowest negative return compared to other days. The research findings also indicate that there is little bond return volatility at the NSE as judged by the distribution. The findings support that there is potential advantage to investors due to the day of the week effect anomaly is present in the Kenyan bond market.
CitationMaster of Business Administration
University of Nairobi