An estimation of the systematic return risk at the Nairobi Stock Exchange

Abstract

Investors are mainly interested in knowing the degree of risk exposure in any investment undertaking or set of undertakings. They are also interested in how much return they would receive in exchange for their investment funds Academicians and other parties also have a stake in these market parameters. These serve as yardsticks in determining which market or asset portfolio to invest in. This research project intended to measure the market risk and return for the Nairobi Stock Exchange. Secondary data on forty six quoted companies was utilized to compute the various market parameters. The results obtained revealed a market risk of 3.55% and a market return of 14.80%. The market return of J 4.8% added to the coupon rate on the one-year Central Bank of Kenya Treasury Bonds of 150% gives a total of 298(Yo This does not deviate much from the general market interest rates ranged between 28% and 32% towards the end of 1997. The coupon rate on Central Bank of Kenya Treasury Bonds that is currently applicable is that of one-year Floating Rate Treasury Bonds whose coupons are based on the 91 day Treasury Bill rate. This will affect returns on equity portfolios because investors make rational decisions based on a set of available investments. The effect of the one-year Floating Rate Treasury Bonds will be to suppress the return that could be obtained from equities due to the high yields on these bonds.