Equity risks and return factors on the Nairobi stock exchange

Abstract

The study looks at risks and factors that affect returns on the Nairobi Stock Exchange. The study identifies sources of such risks; those that can be eliminated through diversification (unsystematic) and those that cannot be eliminated through such (systematic risk). Systematic or covariance risk is calculated by a standardised measure called Beta, which is a tendency for It company's returns to move together with market - wide returns. Beta and a number of risk factors apparently exert considerable influence on returns on the Nairobi Stock Exchange. The study finds foreign interests rates, domestic (short - term) interests, domestic exchange rates significant in affecting returns. The study calls for prudent and stable management of the macroeconomic environment coupled with efficient regulatory mechanisms to be put in place. This would be appropriate given that the market has to be competitive in a fully integrated - global economy.