The January Effect on Stock Returns of Firms Quoted at the Nairobi Securities Exchange

Abstract

This research project aimed at investigating presence of January effect on stock returns on the various sectors at the Nairobi Securities Exchange in order to address a methodological gap which had been identified of inconsistent findings put across by previous researchers with regard to the existence of seasonal effects at the Nairobi Securities Exchange. The Efficient Market Hypothesis underpinned the study. The descriptive research design was adopted. The population was 65 companies that were listed at the NSE as at December 31, 2015; out of this population, only 55 companies qualified as they provided the full set of data on prices of stock. The secondary data was sought from the NSE data vendors. The stock prices were then utilized to compute the January mean returns and also rest of the year mean returns. Paired t-test was then utilized to establish if there might have been a difference of a significant amount in mean returns. From the paired t-test, there was difference in mean returns in certain years of the period under study while other periods there was no significant difference in returns. This study established that there was January effect across 9 of the 10 sectors that were studied. The combined paired t-test indicated that there was also January effect on the NSE overall. The study recommended that investors should carefully look at the trends in the month of January and create portfolios that will enable them maximize returns. It also recommends that further studies on seasonality of stock returns conducted could explore on including other factors that affect the movement of stock prices for more robust results.