Modelings stock price volatility during pre and post financial crisis period in Kenya

Abstract

The trend of stock market prices in Kenya during the financial year 2007-2010 has been of major concern for stock market investors and the financial institutions. Investors as well as the financial institution use the stock returns volatility to measure risk however it becomes a challenge to make predictions on the stock price movement if the stock market environment is unstable.This study mainly concentrates on estimating the historical volatility using historical data from Nairobi stock exchange. An analysis of the trend of stock market prices during this period has revealed that unexpected event spikes the volatility of stock prices. The volatility trend revealed in this study can be associated with the major shocks affecting the financial economy for instance the global financial crisis, domestic crisis (post-election violence). Injection of these shocks in the economy, increases uncertainty on the political and economic stability hence lowers investor’s confidence.