Stock returns and trading volumes - the case of the Nairobi Securities Exchange

Abstract

This study examines the causal and contemporaneous relationship between stock returns and trading volumes at the Nairobi Securities Exchange. The study makes use of panel data from 44 NSE-listed stocks over the period running from July 2009 to February 2014. Analysis of data is done by use of the Granger and Sims test for causality as well as estimating a contemporaneous relationship equation. The findings indicate an unambiguous causal relationship between stock returns and trading volumes, running from the former to the latter. It is also found that trading volumes do not make the market move. These results, therefore, imply that incorporating trading volume information in investment or stock purchase and sales decisions adds little value to investors' portfolios.