An Investigation on the Month of the Year Anomaly in the Nairobi Securities Exchange in ,kenya

Abstract

The question of whether there exists market anomaly in stock market has been the subject of research. Anomalies are the indicator of inefficient markets; some anomalies happen only once and vanish, while others happen frequently, or continuously. This study sought to investigate whether monthly market anomalies exist at the NSE and whether they are persistent over time if present. The study relied on monthly closing NSE 20- share index data from 1st January 2010 to 31st December 2013 from the Nairobi Securities Exchange. Data collected from NSE database was analyzed by use of descriptive statistics with the help of Statistical Package for Social Science (SPSS Version 21.0). The t-test statistic with significance level of 0.05 was employed to test the significance of the average monthly returns while p-value was used to test for persistence. The summary statistics reveal that the average returns and standard deviation on each month of the year varies .Two months presented significant P-value; March (the second period), and July (the whole period).Apart from March and July, no other Month-of-the-Year effect was observed from the data .Finally it was evident that there is no persistence of the monthly effect, since the March effect (2012-2013) and the July effect (the whole period 2010-2013) only appear one time respectively. The results are inconsistent with the efficient market hypothesis, thus suggesting that the Nairobi Securities Exchange is inefficient. These findings may have useful implications for trading strategies and investment decisions; investors may look to gain from managing the risk of their portfolios due to time varying volatility documented in the findings of this thesis.