Stochastic Dominance Analysis of the Performance of Banking Stocks in Nairobi Stock Exchange

Abstract

This study employed stochastic dominance (SD) analysis to evaluate the performance of banking and telecommunication stocks on the Nairobi Stock Exchange (NSE), focusing on Safaricom and Equity. The analysis examined stock returns before and after the outbreak of Covid-19 in Kenya to assess which sector demonstrated resilience during the pandemic. Using non-parametric statistical methods, the study explored First, Second, and Third-Order Stochastic Dominance to determine which stock outperformed the other. The findings revealed that no stock consistently dominated the other across all levels of stochastic dominance. Safaricom and Equity exhibited varying dominance depending on the year and order of dominance, with both stocks showing some degree of superiority in different periods of the study. This suggests that both stocks performed differently in response to the economic challenges posed by the pandemic.