Testing whether contrarian investment strategy offer profitable opportunity at Nairobi stock exchange

Abstract

Contrarian investment strategy i.e. the act of buying past losers and selling previous winners have been studied widely in developed markets such as the US, and UK. In spite of the importance of studying past performance, very little research, if none, had been conducted to test if contrarian strategies hold in the Kenyan emerging stock market. This study therefore sought to bridge the gap in literature by being one of the pioneering works in this topic in Kenya by determining whether contrarian investment strategies offer profitable opportunities in the Kenyan Stock market. Monthly returns were calculated and winner and loser portfolios formed on the basis of their performance. The empirical findings suggest that contrarian investment strategy offer profitable opportunities at Nairobi Stock Exchange, especially in the short term.