The behaviour of share prices in the Nairobi stock exchange: an empirical investigation

Abstract

This study presents a picture of the behaviour of share prices in the Nairobi Stock Exchange, Kenya. Besides exposing the nature and character of the exchange,the study shows the status of the exchange among the world stock markets along with its current state of arts. Chapter 1 briefly gives the perspective and/or background of the study; chapter 11 outlines share price behaviour hypotheses, theoretical background and prior research work.Chapter 111 describes the research methodology and the data employed. The empirical results are discussed in chapter 1V, and chapter V contains the conclusions. The study is an empirical examination of the behav1cur of ordinary share prices in the Nairobi Stock exchange (NSE); of ten selected "blue chip " companies. The behavior investigated is weekly bid price change over five years from January , 1986 t.o December, 1990. The bid price successive changes are hypothesized to be random. Using autocorrelation and runs test, the empirica1 results tend to confirm this hypothesis. Specifically, the author found that weekly bid price changes are independent of one another and over time the change, in price is random. Unfortunate to the investor, there were no reported patterns in share price movements. The results throw light on a number of interesting questions. First, they demonstrate that in the NSE past price information is immediately impounded in current prices. Second, they provide evidence that investors in the NSE Cannot make any meaningful prediction concerning future prices, and therefore no abnormal profits can be reaped in the exchange. Finally and interestingly, the results are consistent with the notion of efficient market hypothesis and that the NSE is an efficient market: more specifically. in the weak-form level.