dc.description.abstract | The small firm effect in the cross-section of stock returns is a known asset pricing
anomalies that indicates that stocks returns are a decreasing function of firm size. The
small firm effect is realized when there are persistent abnormal stock returns obtained by
small capitalization firms. The objective of the study was to test the existence of small
firm effect on stock market returns at the Nairobi Securities Exchange. This study
adopted a descriptive research design. The study used quartile portfolios that were
arranged in ascending order according to market value and then divided into four
portfolios, portfolio one containing the smallest firms and the fourth portfolio containing
largest firms. The study used secondary data from the Nairobi Securities Exchange
collected using data collection sheet which were edited, coded and cleaned. F-test, a nonparametric
test of differences developed by Sir Williams Gosset was used in this study as
a test of significance. From the analysis, it can be noted that Monthly returns had varying
degrees but Small Sized Firms displayed a more positive influence on the monthly
returns for the six year period at the NSE.The study concluded that Small Sized Firms
have a significant positive influence on the Monthly Returns of companies at the NSE
thus showing existence of small firm effect. The study recommends that Securities’
management develop a policy so as to reduce the effects of firm size on the monthly
returns. | en_US |