An Investigation of January Effect on the Returns of Neglected Firms at the Nairobi Securities Exchange
This research studied January effect on the returns of neglected firms with a motive of identifying the relationship between January effect and neglected firm effect. The objectives of this study was to investigate whether January effect and neglected firm effect at the Nairobi Securities Exchange for the periods 2012 to 2016. A descriptive research design was employed for the study. The population of the study consisted of 64 firms that were listed at the NSE. The daily stock returns for all listed firms per sector were gathered and analyzing the data statistically to determine if January effect exists. A paired t-test at a significance level of 0.05 was applied to the means of January returns and the means of Rest of Year (ROY) in order to investigate the existence of January effect. It was noted that the Banking sector, Manufacturing sector and Commercial and Services sector portrayed existence of January effect. In order to investigate neglected firm effect which is of the assumption that lesser known firms tend to generate higher returns compared to well-known firms, two portfolios were created, popular and neglected portfolio. Abnormal returns were thereafter calculate for each portfolio and a paired t-test at a significance level of 0.05 applied thereof. It was noted that all p-values were greater than 0.05, hence neglected firm effect does not exist. Investors should take advantage of the arbitrage opportunities resulting from the existence of the market anomaly. Companies and regulatory authorities should put in place measures that counter such anomalies and ensure efficiency of the market. This study was however limited to a five year period thus limiting the sample data. Therefore, more years of study should be studied to afford more conclusive findings. Some sectors showed that January mean returns were significantly lower than the rest of the year means, an anomaly that needs investigating.
The following license files are associated with this item: