Effects of Stock Trading on Returns of Individual Share Trading in Different Companies Quoted on Nairobi Stock Exchange

Abstract

The purpose of the study was to examine the effects of stock trading on returns of individual investors trading on Nairobi Stock Exchange. The study aimed at answering the following questions: What is the empirical evidence on the efficiency of Nairobi Stock Exchange (NSE)? What is the trading behavior and performance of individuals investing on NSE? What techniques to be employed by regular investors to enhance efficiency? The research design was descriptive in nature focusing on individual share traders on Nairobi Stock Market. The study examined the trading of individual investors or rather retail investors to explain why the returns on the stock traded are so minimal. The population of the study was derived from the lists of top six brokers and investment banks. The study targeted a sample size of 50 individual/retail share investors. The study used a structured questionnaire to capture the relevant data that after analysis helped to develop a hypothesis. Empirical analysis done was based on quantitative analysis with emphasis on descriptive statistics, and advanced econometrics models which are well suited to capture the causes of inefficiency. The analysis was done with the help of Statistical Package for Social Sciences (SPSS). Analysis was done and the findings were presented using tables, graphs and pie chart. Regression analysis was used to determine the relationship between variables. The individual investors were divided into; sex, age, level of education, marital status, and employment status. The variables were used to test how much impact they have on the return of shares traded on NSE. It was found out that investors for instance, don't use the education they have to predict the performance of the share market. The sex of the investors determines so much their aggressiveness. For instance, it was significant from the findings that male investors were able to predict the future performance of the market hence took advantage of that to effect on their returns. The age of the investors, marital status, employment opportunity and level of education has no impact on how the investor predicts on the performance of the market. It was also found out that NSE is efficient and no one's knowledge can help in predicting the returns. The study concluded that NSE is efficient and that the prices of stocks are determined by new information in the market. The prices of stock adjust quickly to new information in the market without biasness. The efficient of NSE means that the prices of stocks adjust before any investor has time to trade and profit from a new piece of information. The investors trade to rebalance portfolios and speculate on private information. The investors need to view the decision from various perspectives. Seek information from a variety of sources and consider the problem on their own terms to avoid being swayed by the opinion of others. The study recommends that NSE should highly invest in technology to disseminate information to all investors. This will also increase accessibility of the market and its efficiency. It is important for investor to observe their trading behavior and understand the motives that drive than to trade. Expectation investing is an intelligent approach to stock picking. It is a market based and economically solid.