BBSF Research Projects (2017)

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http://hdl.handle.net/11071/5373

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Application of technical analysis in trading forex; comparison of trend indicators vs oscillators
(Strathmore University, 2017) Amunga, Jeff Chibole;
This paper tests the hypothesis that in the long term, the use of technical analysis can produce positive returns. It particularly looks at the use of two of the most commonly used types of technical analysis which are momentum based indicators and oscillators. In order to assess the performance of this types of technical analysis, two popular momentum based indicators are chosen, namely Moving Average and Bollinger bands, while two popular oscillators are chosen namely, Relative Strength Index and Moving Average Convergence common. To gauge the performance of the indicators, the parameters of each of the indictors is subjected to six most traded currency pairs which were USDJY, EURUSD, USDCAD, GBPUSD, USDCHF and AUDUSD. The daily closing prices of each of the currency pairs are used, and based on the parameters of the individual indicator, a buy or sell signal is conveyed by the indicator, and the profit or loss, of each of the signals is measured and summed up so that comparison of performance is possible. Daily closing prices from 2000-2015 are used. The findings suggest it is possible for technical analysis tools to make positive returns over the long term. It also suggests that momentum indicators are better than oscillators and that Bolliriger bands are the best of the four indicators measured in this paper:
The effect of environmental performance on stock returns: a study of South African stock markets
(Strathmore University, 2017) Birir, Laura Jebett
Changes in climate change have brought about new strategies in investing. This is further reiterated with the creation of sustainability indices which are able to capture the performance of stocks with a strong sustainable performance and are able to advance on the environmental problem. The question to ask is does the market value companies that have better environmental reputations than those that do not? This paper researches on the impact of firms’ environmental performance on their stock returns, with a focus on the South African market. Environmental performance in this case is captured by an event study following the FTSE and JSE partnership announcement and followed subsequently with the launch of the FTSE/JSE Responsible Index. OLS and M-estimation are used to analyse the coefficients. With the improved results of the M-estimator of coefficients, the findings are not sufficient to be representative of the JSE All Share Index. This is because only three of the ten sample of stocks listed on the responsibility index show significant changes in risk and only one stock in the responsibility index made an abnormal return with the partnership announcements. Of those not listed on the responsible index, only two companies reported negative abnormal returns at the partnership announcement, with another one company being punished at the launch of the responsible index after reporting negative abnormal returns. Therefore, it is the conclusion that environmental performance does not make a great impact for the stocks listed on the JSE All Share Index. Further areas of research include a focus on other developing countries with sustainable indices, changes in the model to allow for MM-estimation for regression analysis and the consideration of the impact of environmental performance on economic performance as well.
The effect of non-performing loans on the financial performance of commercial banks in Kenya
(Strathmore University, 2017) Mitai, Achieng Annette
This study was carried out with objective of finding out whether the commercial banks in Kenya have been impacted by the problem of non-performing loans and whether ownership has any influence on the impact of non-performing 10ans. A Profitability measured by return on asset is used as dependent variable and non-performing loans measured by non-performing loans ratio, capital adequacy, management efficiency and liquidity are used as independent variables. The independent variables used of CAMEL factors that also affect profitability of commercial banks. To improve the accuracy and reliability of the test Wank size is used as a control variable and ownership as a dummy variable. The ownership structure used in this study whether a commercial bank is government owned that is the government has a significant stake in the bank or whether it is publicly owned. The research covered the commercial banks in Kenya listed in the Nairobi securities exchange for the past five years 2009-2014. The study used secondary data to analyze and draw conclusions and recommendations. A fixed effects model was used. The study indicates that there is negative effect of non-performing loans ratio on return on assets, confirming that non-performing loans negatively affects profitability of commercial banks in Kenya. On top of that the ownership structure was found to influence the impact of non- performing loans.
Estimating risk premia for corporate governance risk in the Kenyan equity market
(Strathmore University, 2017) Njeri, Kevin Kuria
This study estimates the premia demanded by investors for corporate governance risk in the Kenyan equity market. Using the OECD/G20 corporate governance principles, corporate governance indices are constructed for the 10 of the NSE 20 share index constituents for the period 2008 to 2015. The indices use objectively observable principles that cover shareholder and stakeholder rights, disclosure and transparency as well as board responsibilities. The arbitrage asset pricing framework is then applied to determine the risk premia associated with corporate governance risk. The findings show that for the period under consideration, corporate governance risk attracted a premium of approximately between 4.64% and 15.16% in the NSE. The risk premia suggest disclosure and transparency standards rank above other elements of corporate governance in order of importance to investors in Kenya’s equity market.
Impact of currency risk premium on stock returns
(Strathmore University, 2017) Chege, Grace Mumbi
African markets are riddled with occurrences that make it quite difficult to understand the investing environment, especially with the stock markets. Foreign and local investors hence demand greater compensation for unknown and uncertain risks. This research looks at one such major risk, exchange rate risk. The method used is one by Du & Hu (2014) that describes cross sectional returns of the Fama & French (1993) three factor model and adds one more factor of exchange rate sensitivity. The findings show a strong relationship between stock returns and exchange rate sensitivity. More precisely, we are able to determine given the constraints that the market compensates for currency risk for up to 20% of total returns
Impact of layoff announcements on stock performance of firms listed on the Nairobi securities exchange.
(Strathmore University, 2017) Birech, Joyce Jelimo
Despite vast research on the impact of layoff announcements on stock price performance in developed markets, little is known of the same with regard to the Kenyan market. To this end, this study sought to determine the strength and nature of the relationship between layoff announcements and stock price performance for firms listed on the NSE. The study also set out to investigate the nature of the relationship between the reason for the layoff, as provided by management, and stock price reaction. To conduct the research, a sample often firms that had made layoff announcements over the period spanning 2011-2016 were studied so as to check whether there were any abnormal returns observed during the period surrounding the layoff announcement. To facilitate this, an event study methodology was used with an estimation period of 120 days and a 21-day event window. The findings of the study reveal that there exists no statistically significant relationship between layoff announcements and stock price reaction. However, the reason guiding the layoff decision has an impact on stock price movement. For layoffs that are proactive in nature, stock prices react positively but in cases where the layoff is reactive in nature, there is no impact on the stock price reaction.
Microfinance institutions in Kenya: a mission drift or progression?
(Strathmore University, 2017) Kiarie, Winfred Wanjiru
Microfinance serves low income earners by offering a variety of financial services. This study examines whether sustainability of the Microfinance institution leads to a mission drift or a progression. The study measures sustainability by using the standard profitability ratios. This study utilizes data from 14 Microfinance Institutions in Kenya -assessed from 2007 to 2013. The findings on outreach and percentage of women indicate that the financial performance of a microfinance institution does not indicate a mission drift. Furthermore, the financial performance measures explain very little about the profit status of an institution.
Portfolio diversification fundamental indexing versus cap weighted indexing: a case of Kenya
(Strathmore University, 2017) Macharia, Sharon Wairimu
Indexing is very crucial when it comes to investing. Indexes are believed to be diversified, liquid and transparent and as such, many investors invest in portfolios built on these indexes. Active managers as well seek to build portfolios that generate high returns while focusing on these indexes as their benchmarks. The Capital Asset Pricing Model (CAPM) postulates that a cap-weighted market index is an efficient equity investment and investors cannot do better than these indexes without extraordinary skill or information. This is the main model upon which many indexes are created for example FTSE 15 in Kenya. It has however been established that capitalization weighted indexes are not mean-variance efficient when the model is replaced by real-world constraints (Markowitz H. M., 2005) and thus not optimal. Arnott, Hsu and Moore (2005) found that capital weighted portfolios tend to be flawed when it comes to pricing resulting into a price drag. It is therefore not prudent to fully rely on them. Managers should rather focus on building mean variance efficient indexes than those built on capitalization weighting. According to (Arnott, Hsu and Moore, 2005), (Hsu J. c. & Carmen, 2006) and (Siegel, June 2006) (Walkshausl & Sebastian, 2010), fundamental indexes significantly outperform cap-weighted indexes due a price drag from prices being noisy. The focus of this study is to explore whether this premise is true from a Kenyan investor perspective. Fundamental indexes on book value, cash flow and revenue are constructed focusing on all listed companies in the NSE. The top 15 companies in each portfolio are evaluated against the reference index. The findings do not provide any significant evidence to dispute the findings of Arnott, Hsu and More, 2005. Fundamental indexes outpace cap-weighted indexes and thus should be considered as an alternative in indexing.
Sustainability of an electronic waste recycling plant in Kenya
(Strathmore University, 2017) Maranya, Lester Ontegi
The rise of technological innovation has brought with it an increase of electronic waste which causes environmental and health problems. This paper highlights the informal electronic waste recycling practices mostly used in developing nations and the dangers that come with it. The paper first investigates the amount of mobile phone electronic waste generated in Kenya annually. This is done through a questionnaire to find out the rate at which people change their mobile phones. It then seeks to investigate the sustainability of an electronic waste recycling plant in Kenya by modelling costs and revenues of such a plant over time as to whether such a plant can be self-sufficient. In order to test sustainability of the plant, an excel model is developed comprising of three major components; collection, recycling and refurbishment with relevant costs and revenues stated at each stage. This research will provide a foundation for establishment of an electronic waste recycling facility.
Valuing the stock price of the industrial companies listed on the Nairobi Securities Exchange using the Residual Income Model
(Strathmore University, 2017) Wanjohi, Luke Wang'ombe
The cross-sectional variation in stock returns due to the earnings announcement has gathered extensive research (Dimitropoulos & Asteriou, 2009) (Ball & Shivakumar, 2008) (Cohen, Dey, Lys, & Sunder, 2005) (Skinner & Sloan, 2002) (Beaver, 1968) as it is the primary mechanism through which public companies provide periodic financial performance updates to investors. Although earnings are one important determinant of stock prices, there are other accounting determinants, including balance sheet values (Dechow & Sloan, 2014). The balance sheet is an important source of information as it lists the assets (future economic benefits) and liabilities (future economic obligations) of the company. Lf the accounting process successfully identified all such benefits and obligations and valued them at their fair values, then the balance sheet itself would be sufficient for determining company value. The balance sheet, however, relies on amortized historical costs for many assets (e.g., property, plant and equipment) and ignores other assets altogether (e.g., internally generated intangibles). As a result, early research (Kormendi & Lipe , 1987) assumed that the balance sheet would be less relevant than the income statement for valuation (Dechow & Sloan, 2014).

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