Investor Sentiment and Stock Market Return of Non-Financial Firms Listed on the Nairobi Securities Exchange

  • Simon Sokorte Nabosu The Catholic University of Eastern Africa
  • Dr. Esther Nkatha M’ithiria, CPA The Catholic University of Eastern Africa
  • Dr. Joshua Matanda Wepukhulu The Catholic University of Eastern Africa

Abstract

Investor sentiment is associated with attitude, thought, feeling, mood, belief, judgment, or expectation of market performance. The sentiment feeling is associated with investors' cognitive comparisons in their investment as well as their experience in making an investment decision. This study examined the effect of investor sentiment on stock market return of non-financial firms listed on the Nairobi Securities Exchange. The study adopted positivism as data collection and hypothesis development and testing was achieved. The study used quantitative research design to correlate study variables using mathematical analysis methods. The correlation results indicated that investor sentiment portrayed a positive association to stock market return. Regression of coefficients of the static model results indicate that investor sentiment and stock market return of non-financial firms listed on the Nairobi securities exchange is positively and significantly related. The results implied that there exist a positive and significant relationship between investor sentiment on stock market return since their coefficient values were positive. The regression coefficients result of lagged stock market return and stock market return was positively and significantly related. The regression of coefficients results indicate that investor sentiment and stock market return is positively and significantly related. The study concluded that investor sentiment has a positive and significant effect on stock market return in non-financial firms. These results imply that when investors are more optimistic about the market generating excess returns, their extreme optimism leads to more speculative activities that tempt them to invest even more. The study also shows that sentiment is relatively correlated with stock returns significantly over time. The study recommends that by taking the investor sentiment into account as a significant determinant of stock market volatility in asset price models, investors can enhance their stock returns. The results can inform on policymakers’ efforts to stabilize stock market volatility and uncertainty in order to protect investors’ wealth and attract more investors.

Keywords: Investor Sentiment, Stock Market Return & Non-Financial Firms

Author Biographies

Simon Sokorte Nabosu, The Catholic University of Eastern Africa

PhD Candidate, The Catholic University of Eastern Africa

Dr. Esther Nkatha M’ithiria, CPA , The Catholic University of Eastern Africa

Lecturer, The Catholic University of Eastern Africa

Dr. Joshua Matanda Wepukhulu, The Catholic University of Eastern Africa

The Catholic University of Eastern Africa

References

Alajekwu, U. B., Obialor, M. C., & Okoro, C. O. (2017). Effect of investor sentiment on future returns in the Nigerian stock market. International Journal of Trend in Scientific Research and Development 1(5), 141–155. https://doi.org/10.31142/ijtsrd2256

Almalki, S. (2016). Integrating quantitative and qualitative data in mixed methods research—challenges and benefits. Journal of Education and Learning, 5(3), 288–296. https://doi.org/10.5539/jel.v5n3p288

Almansour, B. (2015). The impact of market sentiment index on stock returns: An empirical investigation on Kuala Lumpur stock exchange. Journal of Arts, Science & Commerce, 6(3), 1–28.

Aroni, J., Namusonge, G., & Sakwa, M. S. (2014). The effect of financial information on investment in shares - a survey of retail investors in Kenya. International Journal of Business and Commerce, 3(8), 58–69.

Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–151. https://doi.org/10.1257/jep.21.2.129

Ball, R. (2009). The global financial crisis and the efficient market hypothesis: What have we learned? Journal of Applied Corporate Finance, 21(4), 8-16. https://doi.org/10.1111/j.1745-6622.2009.00246.x

Bintara, R., & Tanjung, P. R. S. (2019). Analysis of fundamental factors on stock return. International Journal of Academic Research in Accounting, Finance and Management Sciences, 9(2), 49–64. https://doi.org/10.6007/IJARAFMS/v9-i4/6813

Cherono, I., Nasieku, T., & Olweny, T. (2017). Effect of herding behavior on stock market reaction in Kenya. Journal of Management and Commerce Innovations, 5(2), 1059–1065.

Concetto, C. L., & Ravazzolo, F. (2019). Optimism in financial markets: Stock market returns and investor sentiments. Journal of Risk and Financial Management, 12(85), 1–14. https://doi.org/10.3390/jrfm12020085

Dalika, N., & Seetharam, Y. (2015). Sentiment and returns: An analysis of investor sentiment in the South African market. Journal of Management and Financial Innovations, 12(1), 267–276.

Dasgupta, R., & Singh, R. (2018). Investor sentiment antecedents: A structural equation modeling approach in an emerging market context. Journal of Behavioral Finance, 11(1), 36–54. https://doi.org/10.1108/RBF-07-2017-0068

Daszyńska-Żygadło, K., Szpulak, A., & Szyszka, A. (2014). Investor sentiment, optimism, and excess stock market returns. Evidence from emerging markets. BEH - Business and Economic Horizons, 10(4), 362–373. https://doi.org/10.15208/beh.2014.27

Duy, N. T., & Huu Phuoc, N. P. (2016). The relationship between firm sizes and stock returns of service sector in Ho Chi Minh City stock exchange. Journal of European Studies, 8(4), 210–219. https://doi.org/10.5539/res.v8n4p210

Fama, E. (1965). The behavior of stock market prices. The Journal of Business, 38(1), 34–105. https://doi.org/10.1086/294743

Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2), 383–417. https://doi.org/10.2307/2325486

Fama, E. F., & French, K. R. (1993). Differences in the risks and returns of NYSE and NASD stocks. Journal of Financial Analysts, 49(1), 37–41. https://doi.org/10.2469/faj.v49.n1.37

Fredrick, O., & Muiva, N. B. (2015). Fundamental analysis of stock returns of non-financial firms listed at the Nairobi securities exchange. Universal Journal of Accounting and Finance, 3(3), 113–116. https://doi.org/10.13189/ujaf.2015.030302

Gu, J., & Li, T. (2018). The Construction of Investor Sentiment Index in China's Stock Market. In 3rd International Conference on Judicial, Administrative and Humanitarian Problems of State Structures and Economic Subjects (JAHP 2018) (pp. 160-165). Atlantis Press. https://doi.org/10.2991/jahp-18.2018.33

Hasanbaglou, M., & Salteh, H. M. (2016). The effect of the accrual anomaly on the performance and future stock returns. International Journal of Humanities and Cultural Studies, 3(2), 758–768.

Kwofie, C., & Ansah, R. K. (2018). A study of the effect of inflation and exchange rate on stock market returns in Ghana. Journal of Mathematics and Mathematical Sciences, 4(2), 21–10. https://doi.org/10.1155/2018/7016792

Makau, M. M., & Jagongo, A. (2018). Systematic risk factors, investor sentiment and stock market performance in Kenya. Journal of Management and Commerce Innovations, 5(2), 1132–1143.

Malkiel, B. G. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), 59-82. https://doi.org/10.1257/089533003321164958

Mathur, S., & Rastogi, A. (2018). Investor sentiment and asset returns: The case of Indian stock market. Journal of Finance and Accounting, 8(1), 48–64. https://doi.org/10.1504/AAJFA.2018.089198

Metwally, A. H., & Darwish, O. (2015). Evidence of the overconfidence bias in the Egyptian stock market and in different market states. The Business and Management Review, 6(4), 178–198.

Naik, P. K., & Padhi, P. (2016). Investor sentiment stock market returns and volatility: Evidence from National Stock Exchange of India. Journal of Management Practice, 9(3), 213–237. https://doi.org/10.1504/IJMP.2016.077816

Nyangara, D., & Mazviona, B. W. (2014). An analysis of the impact of demutualization on stock market liquidity. Journal of Economics & Management Sciences, 3(1), 1–6. https://doi.org/10.4172/2162-6359.1000165

Oprea, D. S., & Brad, L. (2014). Investor sentiment and stock returns: Evidence from Romania. Journal of Academic Research in Accounting, Finance and Management Sciences, 4(2), 19-29.

Rashid, A., Fayyaz, M., & Karim, M. (2019). Investor sentiment, momentum, and stock returns: an examination for direct and indirect effects. Journal of Economic Research, 32(1), 2638-2656. https://doi.org/10.1080/1331677X.2019.1650652

Timmermann, A., & Granger, C. W. (2004). Efficient market hypothesis and forecasting. International Journal of forecasting, 20(1), 15-27. https://doi.org/10.1016/S0169-2070 (03)00012-8

Tuyon, J., Ahmad, Z., & Matahir, H. (2016). The roles of investor sentiment in Malaysian stock market. Journal of Accounting and Finance, 12(1), 43–75. https://doi.org/10.21315/aamjaf2016.12.S1.3
Published
2022-08-04
How to Cite
Nabosu, S. S., M’ithiria, E. N., & Wepukhulu, J. M. (2022). Investor Sentiment and Stock Market Return of Non-Financial Firms Listed on the Nairobi Securities Exchange. Journal of Finance and Accounting, 6(3), 65 - 81. https://doi.org/10.53819/81018102t2081
Section
Articles

Most read articles by the same author(s)