The size effect at the Nairobi stock exchange (nse) An empirical investigation

Abstract

The size effect is one of the best known academic market anomalies. There have been a considerable number of empirical studies that have found a relationship between equity returns and the size of a firm. Collaborating results of Fama and French (1992) indicates that there is regression indicating a positive linear relationship between stock returns and size. ' This study aims at examining the role of firm size in explaining the cross-section of average stock returns in Kenya over the period 1991 - 2002. For purposes of this study secondary data is obtained predominantly from 53 quoted companies on the Nairobi Stock Exchange (NSE). The objective of the study was to determine whether firm size influences returns on investment portfolio in Nairobi Stock Exchange. The daily stock return data is not well documented in the Nairobi stock exchange records for the years prior to 1996. In our analysis therefore, we used the weekly returns for the period between 1996 and 2002, to compute the excess returns and also the outstanding number of shares at the end of each year under consideration to compute the market values. The finding of this study was that the size effect is weakly exhibited in the' Nairobi stock exchange and more studies should be done in this area.