A Test Of The Weak-Form Of The Efficient Market Hypothesis: Evidence From The Nairobi Securities Exchange

Abstract

Understanding the market efficiency of a particular stock market is very important to assist existing and prospective investors to make well informed decisions. In a capital market where few players dominate the market, insider dealings are more likely to take place which has a significant impact of waning stock market confidence since the market will depict weak form of market efficiency. This paper sought to test the weak form of efficient market hypothesis at NSE using daily data for stock prices for Kengen for the period of 17th may 2006 up to 31st December 2009, and Kenya power and lighting company for the period of 2nd January 2002 up to 31st December 2009. Secondary data was employed for this study and it was obtained from NSE. The data was subjected to Kolmogorov smirnov goodness of fit test, run tests and Autocorrelation tests. The daily returns in aspect to skewness and kurtosis was found to be non-normal. Same thing resulted from the Kolmogorov smirnov test. As a result null hypothesis of normality was rejected. Run tests and the Durbin Watson statistic rejected the randomness of the returns. Overall results from the analysis suggests that the Nairobi Stock Exchange is not efficient in weak form