Market Anomalies and Stock Returns of Firms Listed at the Nairobi Securities Exchange, Kenya
DOI:
https://doi.org/10.47604/ijfa.3819Keywords:
Market Anomalies, Stock Returns, Nairobi Securities ExchangeAbstract
Purpose: Many researchers, both globally and locally, have demonstrated that stock markets are inefficient, as investors can rely on market anomalies to gain abnormal returns. Despite theoretical predictions of the EMH, empirical evidence suggests that returns in emerging markets may exhibit predictable patterns influenced by anomalies. This study, therefore, sought to establish the effect of market anomalies on the stock market returns among companies listed at the Nairobi Securities Exchange. The main objective of the study was to determine the effect of seasonal anomalies and technical anomalies on the stock market return among Companies listed at the NSE in Kenya.
Methodology: The study population was for a period of 7 years, from 2018 to 2024. Secondary data was obtained from the NSE database. All the data collected was first input into an Excel sheet and then analyzed using Stata version 20 software. Characteristics of the data for each market anomaly were analyzed using descriptive statistics, and then inferential statistics using the correlation analysis and panel regression model.
Findings: The panel regression results indicated that all the independent variables had a statistically significant effect on stock market returns with seasonal anomalies (β = 0.0947, p = 0.0041) and technical anomalies (β = 0.1365, p = 0.0185). From the findings, technical anomalies had the strongest influence, followed by seasonal. The model explained approximately 50.9% of the variation in stock returns, indicating that market anomalies play a significant role in determining stock performance. The study concludes that the NSE is characterized by partial market inefficiency, where both fundamental and behavioral factors influence stock returns. The findings imply that investors can exploit market anomalies to enhance returns, although the overall market performance remains weak.
Unique Contribution to Theory, Practice and Policy: The study recommends that investors adopt integrated investment strategies combining fundamental analysis, technical analysis, and timing strategies, while policymakers should enhance market efficiency, transparency, and investor protection. Further research is recommended to incorporate additional variables such as macroeconomic factors and behavioral elements to explain the remaining variation in stock returns.
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