O J Oluoch, A L Oyugi


The Nairobi Securities Exchange (NSE) is one of the most vibrant financial securities markets in Africa. The equity securities of the companies listed at the market have for a long time been subdivided into Agricultural; Commercial and Services; Finance and Investment and Manufacturing and Allied segments. This longitudinal empirical survey investigates the market riskiness of the returns of the various segments of the NSE using Capital Asset  Pricing Model (CAPM) of Sharpe (1964) to vis-à-vis the market returns. The study covers the period January 2008 through December 2011, a period over which the NSE All Share Index (NASI) which is used to indicate market returns has been in existence. Ordinary least squares method (OLS) is used to estimate segmental betas which are then used to test two null hypotheses. First that the market segmental betas are statistically insignificant in determining the NSE investment portfolio returns and second there is  no significant difference between the inter-segmental market betas (indicators of segmental systematic risk) in the various segments of the market. The study rejects the first null hypothesis for all thefour segments and finds that beta is a statistically significant indicator of market risk for those segments. With regard to the second null hypothesis, the various segments are found to have betas with significant difference in means indicating that each of the segments have unique risk factors relative to the all the companies listed at the NSE. In a nutshell, the agricultural sector is found to be the most risky sector with the highest volatility while the Finance and Investment sector is the least risky for the study period. Industrial and allied as well as the finance and investment sectors generally exhibit less volatile returns than the overall NSE. From the findings it can be concluded that the various equity investment segments of the NSE exhibit unique idiosyncratic factors that influence segmental market risk. 


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