The Relationship between Lunar Cycle and Stock Returns in Companies Listed at Nairobi Securities Exchange

Abstract

The belief that Lunar Cycle (LC) affects people’s mood and behavior stems from ancient lore. Various psychological studies and behavioral business literature provide proof about effect of mood on the benefit prices. Despite the effects of LC on people’s moods by international researchers, there has been no known study that focuses on the impact of LC on stock returns at Nairobi Securities Exchange (NSE). The purpose of this research is to examine the association between LC and stock return among companies listed at NSE. This study adopts descriptive research design and a sample of NSE 20-Share Index to meet the objective of the study. Secondary data collected from NSE reports between 2010 and 2014 is analyzed using event study model and numerical Package for the societal discipline evocative data and statistical association, and the significance of the findings tested using t-statistic at 95% significance level. This study finds that stock returns increases throughout New Moon (NM) and Full Moon (FM) phases compared to the normal trading days of the LC. Further analysis finds that cumulative stock returns are higher during the NM dates. The p–value of -2.72 and -2.404 recorded during NM and FM phases respectively deviates significantly from the t-significant rate of 1.943 under the degree of freedom of 6, subjected to testing at 95% significance level. The results show that there exists significant difference among mean value of stock returns during NM/FM phases compared to the mean return during normal trading days. This study recommends that capital markets authority (CMA) and NSE comes up with regulation which will edge lowest and highest price levels through FM and NM phases so that it can secure price against manipulations and to protect investors against manipulations.

Keywords: Lunar Cycle, Stock Returns, Nairobi Security Exchange