Abstract: This research set out to establish whether underlying firm characteristics in the NSE could be employed to accurately predict stock returns. The study period was year 2001 to year 2010 and the population of listed companies was 56. Purposive sampling was employed in selection of a sample of 32 listed firms. Companies that demonstrated consistent stock performance were only 6. Multi-regression analysis was employed to test which individual underlying characteristic had significant influence on the listed firms stock returns. The findings indicated that the regression model was not a good fit and this was attributed to the fact that NSE was at least weak form efficient and thus could not allow past information in the form of underlying characteristics to predict stock performance. Nevertheless the underlying firm characteristics that appeared to influence stock performance included: book value, dividend yield, market return and volume of stocks traded. The policy implications of these findings were that investors should trust stock prices in the NSE as opposed to using techniques like fundamental analysis that relied on past information in a bid to outperform the market.
Keywords: Consistent Stock Performance, Stock Returns and Underlying Firm Characteristics.
Title: Test of Predictive Ability of Underlying Firm Characteristics in the Nairobi Securities Exchange
Author: James N Ndegwa
International Journal of Social Science and Humanities Research
ISSN 2348-3156 (Print), ISSN 2348-3164 (online)
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