January effect on stock returns

Abstract

The presence of the seasonal or January effect in stock returns has been reported in several developed and emerging stock markets. Over the last couple of decades, there has been a steadily growing interest in new and different forms of investment. The objective of this study was to investigate the existence of January effect on stock returns: evidence from Nairobi Securities Exchange. The target population for this study included 50 companies listed in the Nairobi Securities Exchange as at 31 December 2011. The study was carried out focusing on a period of ten years up to 2011. This study utilized secondary data. Data on the market share prices was obtained from the share prices as reported by N.S.E. Data collected was analyzed using simple linear regression and correlation analysis. The study concluded that January effect has no significant relationship with the stock returns at NSE. In particular the study established that although other studies find that volatility tends to be higher in January, this study finds it to be period-specific and mostly in value-weighted return series, but not in equal-weighted return series. This is true for both the unconditional and conditional return volatility. The study findings indicate that there is no significant relationship between the mean monthly January Effect on stock returns and the mean monthly stock returns of February through December. Comparisons between our economy and other economies and stock exchanges to find out the reasons why the fluctuations are either positive or negative need to be done. A research on the macro-economic and other factors to find out the other causes of these fluctuations should also be done to shed more light on why there are these fluctuations.