The Effect of Stock Split to Efficient Market Hypothesis in Nairobi Security Market from 2004-2009 (A survey of Selected Companies Quoted in the Security Market)
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Date
2013-08-24
Authors
Mureithi, Simon Maina
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Abstract
Efficient market hypothesis can be defined as a market in which security prices adjust
rapidly to the arrival of new information and, therefore the current prices of securities reflect
all information about the security "In an efficient market, competition among the many
intelligent participants leads to a situation where, at any point in time, actual prices of
individual securities already reflect the effects of information based both on events that have
already occurred and on events which, as of now, the market expects to take place in the
future. Stock splits Anomalies are empirical results that seem to be inconsistent with
maintained theories of asset-pricing behavior. They indicate either market inefficiency (profit
opportunities) or inadequacies in the underlying asset-pricing model ,The objectives of this
study was ;To examine the effect of stock splits at the NSE and whether the investor can
make abnormal return ;To determine the effect of stock splits on Liquidity at NSE and ; To
establish the effect of stock splits on Company ownership. This research used the event
study methodology originally introduced to a broad audience of accounting and financial
economists in two landmark papers, event studies have since become ubiquitous in capital
markets research. The secondary data was obtained from NSE secretariat informational
database and the listed company's financial statements. The data was ana lysed using
Microsoft excel, Statistical Package for Social Sciences (SPSS) program a simple
methodology based on the market model was both well-specified and relatively powerful
under a wide variety of conditions, therefore, the market model was used to compute the
abnormal returns Results indicated that generally, there was an increase in the volumes of
shares traded when stock splits were announced. This was especially so in the days around
the stock splits. Trading activity was also seen to generally increase after the stock split as
compared to that before the split. The results indicate that there is a positive cumulative
abnormal return during the entire event window of stock split and after completion stock split
There is need for further study in this area and a need to include more independent variables
such as those relating to firm size and dividend expectations so as to determine whether when
other factors are considered the market would still react positively to stock split
announcements. The study looked at theories relating to why companies split their stock. The
reasons why companies split their stock were to achieve an optimal trading range, to achieve
an optimal tick size and to signal managements' confidence in the future stock price
Description
HG 4028 .S75M8