The Relationship Between Risk and Return for Firms Listed at the Nairobi Securities Exchange

Abstract

Risk is the possibility of losing investment. Low risks are associated with low potential returns while high risks are associated with high potential returns although this relationship has been empirically contested with few studies being carried out in Kenya on the same. This study sought to establish the relationship between risk and return for firms listed in the NSE in Kenya. It targeted to investigate the relationship and how it affects growth of the market in general. The study was guided by the following objectives; investigate the relationship between systematic risk and growth of firms listed in the NSE within the study period. The study used a sample of 14 companies listed at NSE and analyzed data between 2010 and 2014. This was therefore a census covering all the data on stock performance in the bourse. The data was subjected to various tools of analysis to establish any trend that would be used to predict future performance of the market. The finding showed there is a moderate correlation between risk and the returns for firms listed in the NSE. The researcher recommends the following: More consultations between the management and shareholders are required to balance growth in assets and the expected returns to investors. This is aimed to reduce any conflicts that might arise and provide an ideal working environment. This leads to enhancing strategic alliance among owners and management for more market growth. The researcher also suggests further studies on this relationship by targeting a larger period and by looking at major political in the country. This could be looked at based on asset growth, market return and the influence of externalities such as political referendums, elections and even terror attacks on major investments in the country.