The Weekend Effect: An Exploitable Anomaly on the Average returns of Nairobi Securities Exchange

Abstract

The presence of seasonality in stock returns violates the weak form of market efficiency because equity prices are no longer random and can be predicted based on past pattern. This facilitates market participants to devise trading strategy which could fetch abnormal returns on the basis of past pattern. Fluctuations in the stock returns of firms listed at Nairobi Securities exchange motivated this study. In the Kenyan context, studies conducted on market anomalies in different markets have continued to yield different results in the majority of the investigated markets including the Nairobi Securities Exchange. This paper examines whether there is a significant variation in the average daily stock returns at the NSE and compares the findings to the previous empirical works on the topic. The paper tested for the presence of the Monday effect, differences in mean return across the five trading days, January effect, differences in the mean return across the five trading months and also provided the day-to-day and year-to-year behavior of stock return at the NSE. The study employed daily data from the year 2001 to 2015 to do analysis. The method of analysis was t tests and ANOVA. Policy recommendations are afterwards presented to aide the investors in making key investment decisions.

Key Words: Weekend Effect, Monday Effects, Stock Returns, Nairobi Securities Exchange