Application of the arbitrage pricing model in predicting stock returns at the Nairobi stock exchange
Abstract
This study applies the multi-index (APT) to explore the relationship of NSE companies
stock returns to selected market and industrial variables. In this study I have used a model
i.e. the relative pricing (APT) model, to explain the expected returns at the NSE. Use of
indices as well as unanticipated changes in economic variables as factors driving security
returns are employed. Regression results on the variables are mixed; in particular, interest
on loans and interest on savings are positively related to NSE stock returns, but the
relationships are not significant.
The results of this paper suggest that a multi-index APT using selected economic and
industrial variables provides additional power in explaining the variability of NSE stock
returns over a single index model using the market index alone. It is therefore noted that
the inclusion of economic variables to a large extent improves the explanation of the
cross-section of expected returns
Citation
Masters of business administrationSponsorhip
University of NairobiPublisher
School of business,University of Nairobi