Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment
Purpose:Prior literature has focused on the direct effect of firm level fundamental characteristics on stock returns while ignoring the likely effect of investor irrationality on asset pricing decisions. The purpose of this study is to investigate the role of investor sentiment in the relationship b...
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| Format: | Article |
| Language: | English |
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CSRC Publishing
2021-09-01
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| Series: | Journal of Accounting and Finance in Emerging Economies |
| Subjects: | |
| Online Access: | https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1992 |
| _version_ | 1818773544257978368 |
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| author | Nebat Galo Mugenda Tobias Olweny Joshua M. Wepukhulu |
| author_facet | Nebat Galo Mugenda Tobias Olweny Joshua M. Wepukhulu |
| author_sort | Nebat Galo Mugenda |
| collection | DOAJ |
| description | Purpose:Prior literature has focused on the direct effect of firm level fundamental characteristics on stock returns while ignoring the likely effect of investor irrationality on asset pricing decisions. The purpose of this study is to investigate the role of investor sentiment in the relationship between value risk premium and stock returns in Kenya.
Design/methodology/approach:
The study utilized monthly time series data for 60 companies listed at the NSE over the recent 9 years from 2011-2019. The study employed time series regression using ARDL and VEC estimation techniques to examine whether the effect of value risk on stock returns will vary with level of investor sentiment.
Findings: Results show weak evidence for existence of value risk premium at the NSE using the main effects model. The pricing effect of value risk premium is however enhanced in the interaction model. The interaction though not significant implying that there is no moderating effect of sentiment.
Research limitations: The shorter nine-year period considered by the study could be a source of small sample bias in the estimation. Sample periods for studies in mature markets span for over decades. In this light, making comparison of the findings in this thesis with those of other related studies may not be feasible.
Originality/Value: This study is first of its kind to analyze the moderating effect of investor behavior on asset pricing for an emerging market. The paper contributes to portfolio management and asset pricing literature for emerging markets. |
| first_indexed | 2024-12-18T10:26:56Z |
| format | Article |
| id | doaj.art-735667e5da584821ad66ae1b0d6a7370 |
| institution | Directory Open Access Journal |
| issn | 2519-0318 2518-8488 |
| language | English |
| last_indexed | 2024-12-18T10:26:56Z |
| publishDate | 2021-09-01 |
| publisher | CSRC Publishing |
| record_format | Article |
| series | Journal of Accounting and Finance in Emerging Economies |
| spelling | doaj.art-735667e5da584821ad66ae1b0d6a73702022-12-21T21:10:57ZengCSRC PublishingJournal of Accounting and Finance in Emerging Economies2519-03182518-84882021-09-017310.26710/jafee.v7i3.1992Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor SentimentNebat Galo Mugenda0Tobias Olweny1Joshua M. Wepukhulu2School of Business, Jomo Kenyatta University of Agriculture & Technology, P.O. BOX 484-60400 CHUKA , KenyaSchool of Business, Jomo Kenyatta University of Agriculture & Technology, P.O. BOX 62000-00200 NAIROBI, KenyaSchool of Business, Jomo Kenyatta University of Agriculture & Technology, P.O. BOX 62000-00200 NAIROBI, KenyaPurpose:Prior literature has focused on the direct effect of firm level fundamental characteristics on stock returns while ignoring the likely effect of investor irrationality on asset pricing decisions. The purpose of this study is to investigate the role of investor sentiment in the relationship between value risk premium and stock returns in Kenya. Design/methodology/approach: The study utilized monthly time series data for 60 companies listed at the NSE over the recent 9 years from 2011-2019. The study employed time series regression using ARDL and VEC estimation techniques to examine whether the effect of value risk on stock returns will vary with level of investor sentiment. Findings: Results show weak evidence for existence of value risk premium at the NSE using the main effects model. The pricing effect of value risk premium is however enhanced in the interaction model. The interaction though not significant implying that there is no moderating effect of sentiment. Research limitations: The shorter nine-year period considered by the study could be a source of small sample bias in the estimation. Sample periods for studies in mature markets span for over decades. In this light, making comparison of the findings in this thesis with those of other related studies may not be feasible. Originality/Value: This study is first of its kind to analyze the moderating effect of investor behavior on asset pricing for an emerging market. The paper contributes to portfolio management and asset pricing literature for emerging markets.https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1992Value Risk premiumStock ReturnsInvestor SentimentAuto-Regressive Distributed LagVector Error Correction Model |
| spellingShingle | Nebat Galo Mugenda Tobias Olweny Joshua M. Wepukhulu Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment Journal of Accounting and Finance in Emerging Economies Value Risk premium Stock Returns Investor Sentiment Auto-Regressive Distributed Lag Vector Error Correction Model |
| title | Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment |
| title_full | Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment |
| title_fullStr | Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment |
| title_full_unstemmed | Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment |
| title_short | Value Risk Premium and Stock Returns in Kenya: Exploring the Moderating Effect of Investor Sentiment |
| title_sort | value risk premium and stock returns in kenya exploring the moderating effect of investor sentiment |
| topic | Value Risk premium Stock Returns Investor Sentiment Auto-Regressive Distributed Lag Vector Error Correction Model |
| url | https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1992 |
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