Browsing by Author "Chege, Theuri"
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- ItemReturn volatility and equity pricing: a frontier market perspective(Social science research network, ) Othieno, Ferdinand; Chege, Theuri; Kodongo, OdongoUsing both monthly and weekly return series between 1999:01 and 2013:12, we investigate the dynamics of stock returns and volatility in a Kenya’s fledgling equity market – the Nairobi Securities Exchange. Both the GARCH-in-mean and E-GARCH models yield positive and significant conditional variance parameters. We also find that shocks to equity returns of conditional volatility are highly persistent. Our results also indicate that conditional variance is driven more by the past conditional variance than it is driven by new disturbances. Finally, we find evidence of volatility clustering in the stock markets around major world and domestic economic episodes. Results are consistent with the inference that investors require larger risk premia on equities if they anticipate greater price volatility in future.
- ItemReturn volatility and the pricing of equities at the Nairobi Securities ExchangeChege, Theuri; Othieno, Ferdinand; Kodongo, OdongoThe study is an empirical test of asset pricing theory, which postulates that volatility is priced if a positive relationship exists between asset returns and their volatility. The asset under study is the Nairobi Securities Exchange 20-Share Index (NSE-20), which is assumed to be a welldiversified portfolio. Data from daily values of the NSE-20 were collected over a 15 year period from January 1999 to December 2013, and from these data, monthly returns were computed. Two models of the Auto-Regressive Conditional Heteroscedasticity-in-Mean (ARCH-M) family allowed the study to specify volatility conditionally. The study finds that monthly NSE-20 returns are not normally distributed and exhibit volatility clustering. A positive and significant relationship between risk and returns is found; indicating that volatility is priced. The study hopes to be useful to portfolio managers when carrying out a forward-looking valuation of a well-diversified portfolio of Kenyan stocks as well as other similar stocks based on market characteristics.