Size, Book to Market Factors and Trading Volume Adjustment on Equity Risk Premium an Empirical Evidence from NSE, Kenya

George Shibanda¹, Olweny Tobias^2, and Nasieku Tabitha^2,

¹PhD Candidate, Department of Economics, Accounting and Finance, Jomo Kenyatta University of Agriculture and Technology, Kenya

²Lecturers, Department of Economics, Accounting and Finance, Jomo Kenyatta University of Agriculture and Technology, Kenya

Cite this paper:
George Shibanda, Olweny Tobias and Nasieku Tabitha. Size, Book to Market Factors and Trading Volume Adjustment on Equity Risk Premium an Empirical Evidence from NSE, Kenya. Journal of Finance and Economics. 2024; 12(4):89-101. doi: 10.12691/jfe-12-4-2

Abstract

This study investigated the influence of size, book-to-market (B/M) factors, and trading volume adjustments on the equity premium (EP) at the Nairobi Securities Exchange (NSE) from 2011 to 2022. The study adopts the Fama-French model, incorporating size (SMB) and trading volume to understand the equity premium better. The analysis also examines the moderating effect of liquidity on the relationship between the Fama-French five factors (FF5) and equity premium in the Kenyan market. Using secondary data from 64 listed firms and portfolios constructed following the Fama-French method, the study applies time-series regressions with heteroscedasticity and autocorrelation corrections using the Newey-West estimator and ARIMA. Panel data over ten years and 640 cross-sections were analyzed. The findings highlight market risk as the primary driver of the equity premium at the NSE. The results indicated no significant relationship between Company Size and the Equity Premium of listed companies on the Nairobi Securities Exchange. The results also showed that book to market equity ratio is not a significant predictor of Equity Premium of listed companies on the Nairobi Securities Exchange; the study provides practical insights for investors, portfolio managers, and policymakers, offering a comprehensive framework to optimize investment decisions and develop strategies to safeguard the economy from potential risks.

Keywords:
Company Size NSE trading volume adjustment Equity Premium

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