Investor Sentiment and Equity Markets: Evidence From Kenya

Abstract

This study investigated the relationship between investor sentiment and performance of quoted equities in Kenya. The study has three specific objectives which include; to determine the relationship between investor sentiment, represented by value of shares traded, and performance of the NSE equity market; to determine the relationship between investor sentiment, represented by volume of shares traded, and performance of the NSE equity market; and to draw policy recommendations from the research findings. The aim of the study is to provide policy makers and the academic community with knowledge of the relationship between investor sentiment and equity market performance. The study used two proxy measures of investor sentiment against market capitalization as an indicator of stock market performance. The two proxies for investor sentiment include the volume of shares traded and value of shares traded. This study used quarterly time series data for the period between 1996 and 2013. The study employed the augmented Engle and Granger Cointegration test and the Error Correction Model. The empirical results indicate the existence of both long-run and short run relationships between the indicators of investor sentiment and stock market performance. The study therefore recommends that investor confidence in Kenya be developed further to expand market capitalization