dc.description.abstract | The main objective of this research paper was to analyze the relation between market
capitalization and stock market volatility in the Nairobi Securities Exchange. Market
capitalization is an important measure for investors in the determination of the returns on
their investment. It is a universally acceptable metric for assessing the health of a
publicly traded company and an estimate of the value of a business entity. Volatility,
liquidity and business cycle dynamics across the cap classes were modeled by way of a
regression model. The study analyzed the volatility in stock prices at Nairobi Securities
Exchange, using data that span 5 financial years from January 2010 to December 2014. A
descriptive survey design using quantitative data from secondary sources was applied in
the research. The study combined the computational knowledge of volatility to draw
patterns and concluded that market capitalization did affect the volatility of firms listed in
the Nairobi Securities Exchange and that although there was a relationship, it was weak.
The most significant factor that affected the stock market volatility of the listed firms was
found to be market capitalization, followed by liquidity respectively. The study
recommended that investors should consider liquidity and market capitalization in their
volatility estimates and that the regulator should come up with laws that encourage
trading by investors. The study however could neither acquire all the information of all
the selected companies nor control for all the factors that affect stock price volatility.
Further research should therefore be conducted in a different emerging market for
comparison purposes, or within the same domain but controlling for more variables, with
well defined market capitalization classes. | en_US |