The impact of stock market development on security returns: Evidence from the Nairobi securities Exchange

Abstract

ABSTRACT Much of the previous research into stock market developments has delved mainly on the relationship between stock market development and economic growth. Further, most of the research on impact of stock market development on security returns has been in developed countries. Not much local study has focused on the impact of stock market development on security returns. The study therefore, sought to fill the lacuna by carrying out a descriptive research on impact of stock market development on security returns. The research was conducted through an event study. The target population of this study was all the companies listed at the NSE. The study utilized the historical company share prices from the NSE, the firms’ financial statements and other data used in previous research. The data collected was analyzed using event study methodology. From the findings, the study established that stock market development is crucial to the growth of security returns. It further established that policies that enhanced involvement of foreign investors had the highest impact on security returns followed by automation. The study recommends that the existing stock market development including automation, demutualization, regional integration, promotion of institutional investors, regulatory/supervisory improvements, involvement of foreign investors and educational programs at the NSE should be deepened and more others incorporated to bring about positive growth of the stock market which in turn will impact strongly on the economic growth of Kenya.