Testing the Weak-Form Efficiency of the Nairobi Securities Exchange Market

Abstract

The study aimed to test whether the Nairobi Securities Exchange Market is efficient in the weak form, specifically if stock prices movements are random or non-random. This study employed explanatory survey design on 20 firms sampled out of 68 listed firms. The parametric auto-correlation test and the non-parametric runs test were employed to test for serial independence in the daily prices. The data didn’t follow random walk model which postulates a zero mean. The results, Durbin-Watson Coefficient = 0.169 indicates non-independent observations. The study rejected the null hypothesis and concluded that NSE firms’ daily prices were non-random. It is possible that stock market prices are not informative and the market is inefficient in terms of resource allocation. The results is informative to investors and technical analysts to make use of historical data as they predict future prices. The market regulatory body should revise the markets information services and come up with innovative ways to increase free fair and equal dissemination of stock market information. Innovative and superior modeling of past daily prices needed to earn superior profits. Evaluation of factors that make the NSE weak-form inefficient is required implement policies to tackle the causes of inefficiency.

Keywords: Weak-Form Efficiency, Stock Prices, Nairobi Securities Exchange Market

DOI: 10.7176/RJFA/10-24-09

Publication date: December 31^st 2019