The Weekend Effect on Stock Returns at the Nairobi Securities Exchange

Abstract

Scholars particularly in the field of finance have over the years sought to understand the factors affecting the security returns and how to mitigate these factors. The weekend effect being one of the anomalies is very important in these studies. The stock market in Kenya is not yet free from seasonal anomalies despite increased use of information technology and numerous regulatory developments. Nevertheless, local and international studies have not concentrated much on the weekend effect on stock market thus creating a research gap. This research was therefore out to fill this gap by studying the weekend effect on volatility of stock returns at the Nairobi Stock Exchange (NSE). This research was a descriptive design. A regression analysis was done on the returns of the firms listed on the NSE. The population of interest in this study comprised of 20 companies listed at NSE as at 31st December 2014. The study relied entirely on secondary data, which was obtained from the records at Nairobi Securities Exchange for the period 2009 to 2014. The data series comprised of the daily market index, daily prices (closing price and opening price). The data collected was used to generate the weekly average return which was the dependent variable with the Monday returns being the independent variable. The regression model was expressed in the form; Rw = βRM + e where Rw was the weekly average returns, β was the coefficient of regression while RM was the return for Monday for the week. The t – test was used to determine whether the coefficient β would be significantly different from 1 and the F – test used to determine the significance of the regression. The expectation was that if the coefficient was not equal to 1 then the weekend effect would be present but if equal to 1 then the weekend effect would be non-existent. Findings on the regression analysis indicated that coefficient value was less than one. It was concluded that at NSE, the weekend effect is existent since the coefficient of regression was not equal to one. Monday returns at NSE are often negative and are usually less than the weekly average returns. Recommendations were made that investigations be conducted to find out what actually causes the weekend effect at NSE. In addition, investors in the securities market should give adequate attention to the weekend effect in making decisions regarding their trading activities.