AN ANALYSIS OF THE RELATIONSHIP BETWEEN RISK AND RETURN OF LISTED SECURITIES IN THE NAIROBI STOCK EXCHANGE
Stock Performance for the Period 2008 – 2009
In 2008, the first quarter of 2008 saw equity turnover decline by 10.2% compared to a similar period in 2007 partly as a result of preparations for the Safaricom IPO and the impact of disputed general elections results. Share volume on other increased by 1092.93% from end of first quarter 2008 to end of second quarter 2008. The NSE share index and Market Capitalization increased by 7.05% and 57.5% respectively for a similar period.
The year 2009 registered mixed performance in secondary market performance, as equities turnover declined by 45% to Kshs 57 billion, from Kshs 103.5 billion recorded during the previous period. Share volume however increased marginally to 4.26 billion from the previous year’s 4.26 billion, a 0.08% rise. Overall, the performance of the equity market during the year was bearish with the NSE 20 Index dropping by 36%. However during the second half of the year the market remained relatively bullish with the index closing at 3295 points compared to 3199 in January 2009, largely as a result of renewed interest from foreign and institutional investors.
Stock market plays an important role in stimulating economic growth of a country. It helps to channel fund from individuals or firms without investment opportunities to firms who have them and thus improves the country’s economic efficiency. However, stock market is a volatile financial market, in which various factors can affect the return that investors can gain from investing in stocks. The uncertainty of reward from stock market is translated into risks that investors have to bear for investing in stocks.
Since the return from investment in stock market is uncertain, knowing the risk and return nexus in the stock market will be crucial for investors to maximize their return and...