Investigation of Day of the Week Effect on Stock Returns at the Nairobi Securities Exchange

Abstract

This study aimed to determine the effect of the day of the week effect on stock returns at the NSE so as to address the methodological gap identified of inconsistent results reported by previous researchers who adopted different research methodology in determining the effect of day of the week effect on stock returns at the NSE. The study was anchored on the efficient market hypothesis and in order to address the research gap identified the study adopted a longitudinal descriptive research design in testing the hypothesis that there is no difference between average daily returns. The study population was the 62 firms that were listed at the NSE as at 31ST December, 2014 from the population 60 firms qualified for the study because full set of stock prices and dividend payments was sourced. Secondary data was sourced from the NSE website and NSE trading data vendors. Test of normality and Kruskal Wallis test was conducted. The findings of the study are as follows: that the stock returns of the firms listed across the days of the week do not follow a normal distribution: the day of the week effect is present at the Nairobi Securities Exchange and the difference among the daily stock returns of the firms listed at the NSE across all the days of the week is significant and thus conclude that the bourse is not efficient as day of the week effect is a market anomaly. The study recommends formulation and implementation of trading strategies by investors that are in line with the changing patterns of returns in the market can result in earning abnormal returns.