Momentum investing using the 52-week high method at the Nairobi Stock Exchange
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Date
2007Author
Wainaina, George M
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
When coupled with a stock's current price, a readily available piece of
information-the 52-week high price-explains a large portion of the
profits from momentum investing. Nearness to the 52-week high
dominates and improves upon the forecasting power of past returns and
for future returns.
This study set out to determine the presence of momentum at the Nairobi
Stock Exchange and the possibility of generating abnormal returns using
the 52-week high method. The various formation strategies for 3, 6, 9
and 12 months was developed and the ratios that determined their
rankings was calculated. The stocks were then ranked in ascending order
with the winner portfolio consisting of a third of the counters whose ratios
were the furthest from 1 and the loser portfolios drawn from the stocks
whose ratio was nearest to 1. The t-statistic is used to test the
hypothesis.
From the results it can be inferred that it is possible to beat the NSE
market by investing in stocks whose prices are furthest from the its 52-
week high in the short-term and divesting from those whose prices are at
or closest to their 52-week highs also in the short-term.
Future returns forecast using the 52-week high does not reverse in the
long run. These results indicate that short-term momentum and longterm
reversals are largely separate phenomena, which presents a
thallenge to current theory that models these aspects of security returns
as integrated components of the market's response to news.
Citation
Masters Of Business Administration (MBA) Degree, School Of Business, University of NairobiPublisher
University of Nairobi School of Business
Description
A management research project submitted in
partial fulfillment of the requirements for
the Masters Of Business Administration (MBA)
Degree, School Of Business, University of
Nairobi