Analysis of the Behaviour of Stocks of Dar es Salaam Stock Exchange (DSE)

Abstract

A stock market is a place where investors trade certificates that indicate partial ownership in businesses for a set price. Different countries in the world have stock markets where other countries started their stock markets long time ago like the USA  and they have investigated the trend of their market if it is normally distributed or not. Also they have strong models that assist them in making predictions and also help the investors on the choice of the stocks to invest so as to gain the profit in the future. On the other hand other countries just started few years ago. Tanzania is among the countries where stock markets has just started recently and hence there is a need to study the nature of the stocks distribution and see whether the Dar-Es-Salaam Stock of Exchange (DSE) market do follow the theoretical conclusions or not. Thus in this study we adapt the Markowitz modern portfolio theory (MPT) and using the mean variance analysis theory together with the DSE data to investigate if the DSE stock market follows a normal distribution or not. The analysis shows that the DSE stocks log returns are reasonably normally distributed and its prices do change according to the change in other factors like the inflation rate, consumers (investors) interest, the policy of the country, and other exogenous factors.

Keywords: portfolio, stock market, volatility (risk), expected return, covariance matrix.