The existence of the weekend effect at the Nairobi stock exchange

Abstract

The objective of this study was to investigate the existence of the weekend effect at the Nairobi Stock Exchange. There have been a considerable number of empirical studies that have found a relationship between the weekend effect and stock market returns in some of the developed capital markets. In this study, 41 companies dealing in equity stocks satisfied the sampling criteria. Their mean returns were used to test for the equality of means. Monday and Friday mean returns were computed and the same used to test for any variations using regression model. The research findings of this study showed that NSE mean stock returns are equal over the days of the week hence the absence of the weekend effect. In this case, the day of the week does not appear to be a good indicator of stock returns at NSE. Regression of Mondays against other days of the week shows a consistence strong value of R-square for all the companies. However there is a variation on the regression of Friday against the other days of the week. This shows that the performance of stocks for most companies on Monday will influence the performance of the subsequent days during the week. Following the findings, it is concluded that the model of Monday against other days of the week can be used to forecast the performance of most companies as opposed to the model of Friday against the other days. The absence of the weekend effect variations suggests that technical trading rules cannot be applied to attain superior trading results at the Nairobi Stock Exchange.