Value Versus Growth Stocks at the Nairobi Stock Exchange

Abstract

In making investments, investors will always wish to employ strategies that will realize superior performance. One of the most important developments in equity management in the last several years is the creation of portfolio strategies based on value-oriented and growth-oriented styles, where value stocks have been defined as stocks with a higher of either earnings yield, book-to-market value, dividend yield, or cash flow to price ratio, and growth stocks as those with a low of these ratios. In markets around the world, value stocks have been shown to show superior performance than growth stocks except during the later part of the 1990s. This study sought to find out whether value stocks outperform growth stocks at the Nairobi Stock Exchange if stocks are sorted on the basis of earnings yield, book-to-market value, and dividend yield. It is indicative from the study that stocks at the Nairobi Stock Exchange may not be conveniently sorted into value and growth on the basis of the dividend yield. Further, when sorted on the basis of earnings yield and book-to-market value, there is no significant difference between the performance of the value and growth portfolios. It therefore appears that the value growth styles of investment may not be appropriately applied at the Nairobi Stock Exchange.