Abstract: An efficient market is one where there are large number of rational profit makers actively competing with each other trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. This paper tested the semi-strong efficiency of the banking sector of the Nairobi Securities Exchange by examining the reaction of stock returns around annual earnings announcements. A causal research design and an event study methodology were used for five years (2011-2015). 21 days event windows were selected and daily stock returns for 6 banks that were listed and trading over the five year period examined. To ascertain the presence of normal or abnormal returns, adjusted market model was used. The average excess returns (AER) and cumulative average excess returns (CAER) were determined and their significance tested using t-statistics at 5% significance level. The results obtained indicated that there were few days that average excess returns and cumulative average excess returns were recorded. However, since the number of days that the investors could realise abnormal losses or returns were very few, this paper concluded that the investors in the banking sector of the Nairobi Securities Exchange had no scope of consistently outperforming the market; thus a semi-strong form of pricing efficiency.
Keywords: Annual Earnings Announcement, Stock Returns, Average Excess Returns, Cumulative Average Excess Returns, Kenyan Banking Sector, Nairobi Securities Exchange.
Title: Annual Earnings Announcements and Stock Returns: A Test of Semi-Strong Form of Efficiency of the Banking Sector of the Nairobi Securities Exchange
Author: Samuel M. Muchori, Dr. Charles Y.Tibbs, Dr. Alala B. Ondiek
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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