An Empirical Study of the Relationship Between Size and Winner-loser Effect at the Nairobi Stock Exchange

Abstract

This paper investigates the empirical relationship between size and winner-loser effects for stocks quoted on the Nairobi Stock Exchange (NSE), for the period 1996- 2003. The study was based on secondary data collected from Nairobi Stock Exchange databank and publication of a local Newspaper. Based on the historical returns, stocks exhibiting extreme returns relative to the one exhibiting lower returns the paper identifies stock returns reversal in the following three years. This was an evidence of existence of winner-loser effect at Nairobi Stock Exchange over the period. Using the market stock prices and the number of issued shares the study also investigated the presence of size effect and the results didn't give evidence of the phenomenon at the Nairobi exchange as no particular firm size portfolio consistently exhibited higher returns than the other. On investigating size characteristics of both winners and losers firms it was found that losers were consistently smaller than winners on the portfolio formation date.