STOCK MARKET ANOMALIES AND VALUE INVESTING STRATEGIES OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE
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Date
2025-10
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THE CATHOLIC UNIVERSITY OF EASTERN AFRICA
Abstract
The main objective of this study was to determine the relationship between stock market anomalies and value investment strategies of publicly traded companies at the Nairobi Securities Exchange, and more specifically to investigate the relationship between firm size and value investing strategies, the influence of calendar effect anomalies on value investing strategies, the impact of event-related anomalies on the performance of value investing strategies, the relationship between accrual effect anomalies and value investing strategies, and the moderating role of stock price volatility in the relationship. The study exploited fundamental financial indicators to identify undervalued stocks, highlighting the exploitable opportunities presented by anomalies like the day-of-the-week effect, while Behavioral Finance Theory, Signaling Theory, and Resource Dependence Theory provided a theoretical framework for understanding investor behavior and market dynamics. The study adopted a positivist philosophy and applied panel data analysis with stock price volatility as a moderating variable. It examined stock return anomalies among 62 non-financial firms listed on the NSE as of December 31, 2024, of which 45 were analyzed due to data availability, while 17 were excluded following suspensions. The data was analyzed using E-Views 7, utilizing descriptive statistics, correlation analysis, and Random Effects regression models. The study found that firm size anomalies, calendar anomalies, event-related anomalies, and accruals collectively explained 40.8% of the variation in value investing strategies. The remaining 59.2% of unexplained variation in the market is due to other factors beyond its scope, such as macroeconomic shocks, investor sentiment, regulatory changes, and firm-specific events. Firm size anomalies had significant negative effects, calendar anomalies had negative effects, and event-related anomalies had significant negative effects. Accruals had positive but insignificant effects, and stock price volatility had a negative and significant moderating effect. Consequently, the study suggests that investors should focus on value strategies, targeting smaller-cap firms, using calendar-based filters to address seasonal returns, and adopting event screens or timing models to minimize volatility. Accrual-based adjustments may not be necessary due to their insignificant influence. Stock price volatility should be integrated into valuation models for predictive power in unstable periods. Regulatory bodies should strengthen stability mechanisms and improve transparency during crises to safeguard investor confidence and ensure the effectiveness of valuation strategies.
Description
Dissertation
Keywords
Stock market anomalies, value investing strategies, market efficiency, equity valuation, listed firms.