FAMA FRENCH RISK FACTORS AND SHARE PRICE MOMENTUM OF

COMPANIES LISTED AT THE NSE

GEORGE SHIBANDA

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF BUSINESS

ADMINISTRATION IN THE SCHOOL OF BUSINESS AND ENTEEPRENEURSHIP
IN THE COLLEGE OF HUMAN RESOURCE DEVELOPMENT IN PARTIAL
FULFILLMENT OF THE REQUIREMENT FOR AWARD OF THE DEGREE OF
DOCTOR OF PHILOSOPHY IN BUSINESS ADMINISTRATION (FINANCE) OF
JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY

2021
 DECLARATION

This thesis is my original work and has not been presented for a degree in any other
university

Signature: …………………...................................…… Date ……..........…………….

George Shibanda
Reg. No. HDB411-C009-0741/2017

This thesis has been submitted for examination with our approval as the University
supervisors.

Signature: …………………...................................…… Date ……..........…………….

Dr. Olweny Tobias, PhD
JKUAT, Kenya

Signature: …………………...................................…… Date 3/06/2021

Dr. Nasieku Tabitha, (PhD)
JKUAT, Kenya

ii
 DEDICATION

I would like to dedicate this proposal thesis to my Parents Jackson Osome Akoolo and Mical
Osome for their inspiration throughout the process of my education: to my brothers and
Sisters Knightngale, Galileo, Akoolo, Muhando, departed Amataalo, departed Andale,
Kepler, Ombaya, Abisai, Angweye and Amara. To my teachers and lecturers Olweny and
Nasieku, to the whole Jomo Kenyatta University Fraternity and all staff in the academic
institutions I went throughout my studies.

iii
 ACKNOWLEDGEMENT

I would like to thank the almighty God whose grace has kept me going, every moment I tried
to work alone it became very difficult. Second, I would like to thank my Supervisor Dr.
Tobias Olweny for his invaluable comments and input throughout every stage of the research
proposal, his patience and efforts while firmly steering the proposal to its ultimate
conclusion.1 owe him an abiding debt. I would not forget to acknowledge the input of Dr.
Nasieku the co-supervisor, for her contribution in shaping of this proposal I would forever
remember her suggestions. 1 thank you for always being available and forthcoming. To all
my colleagues and friends at the college of human resource and education and the entire
University they facilitated the course in every aspect.

iv
 TABLE OF CONTENTS

DECLARATION.......................................................................................................................ii
DEDICATION..........................................................................................................................iii
ACKNOWLEDGEMENT........................................................................................................iv
LIST OF TABLES...................................................................................................................vii
LIST OF FIGURES.................................................................................................................vii
APPENDICES........................................................................................................................viii
ABBREVIATION AND ACRONYMS...................................................................................ix
DEFINITION OF TERMS........................................................................................................x
ABSTRACT.............................................................................................................................xi
CHAPTER ONE........................................................................................................................1
INTRODUCTION.....................................................................................................................1
1.1 Background of the study......................................................................................................1
1.1.2 Share Price Momentum of Companies Listed at the NSE................................................2
1.1.3 Background of the Nairobi securities exchange...............................................................2
1.2 Statement of the Problem.....................................................................................................2
1.3 Objectives of the study.........................................................................................................3
1.3.1 General objective..............................................................................................................3
1.3.2 Specific Objectives...........................................................................................................3
1.4 Research hypothesis.............................................................................................................4
1.5 Justification of the study......................................................................................................4
1.5 Scope of the study................................................................................................................4
CHAPTER TWO.......................................................................................................................5
LITERATURE REVIEW..........................................................................................................5
2.1 Capital Market Theories......................................................................................................5
2.1.1 Portfolio theory.................................................................................................................5
2.1.2 Efficient Market Hypothesis (EMH)................................................................................5
2.2 Asset Pricing Theory..........................................................................................................6
2.2.1 Capital Asset Pricing Model.............................................................................................6
2.2.2 Arbitrage Pricing Theory (APT).......................................................................................7
2.2.3 The Black-Scholes Model.................................................................................................8
2.2.4 Fama French 3 Factor Model (3FF)..................................................................................8
2.2.5 Fama French 5 Factor Model (5FF)..................................................................................9
2.3 Conceptual Framework......................................................................................................10
2.4 Empirical Review...............................................................................................................10
2.4.1 CAPM vs Share price momentum..................................................................................10

v
2.4.2 Fama French Three Factor model (3FF) vs Share Price Momentum.............................11
2.4.3 Fama French Five Factor Model (5 FF) vs Share Price Momentum..............................13
2.5 Critique..............................................................................................................................15
2.6 Research gaps.....................................................................................................................16
CHAPTER THREE.................................................................................................................17
RESEARCH METHODOLOGY............................................................................................17
3.1 Research Design.................................................................................................................17
3.2 Target Population...............................................................................................................17
3.3 Sample................................................................................................................................17
3.4 Data Collection Instrument................................................................................................18
3.5 Data Collection Procedure.................................................................................................18
3.6 Data Analysis and Presentation.........................................................................................19
3.6.1 Construction of the Variables.........................................................................................19
3.8 Descriptive Statistics..........................................................................................................21
3.9 Model Specification...........................................................................................................21
4.0 Diagnostic tests..................................................................................................................22
REFERENCES........................................................................................................................24
APPENDICES.........................................................................................................................27

vi
 LIST OF TABLES

Table 3.1: Data Type..............................................................................................................18

Table 3.2 Construction of Variables.......................................................................................19

LIST OF FIGURES

Figure 1: Conceptual Framework............................................................................................10

vii
 APPENDICES

Appendix 1: Companies Listed at Nairobi Securities Exchange (NSE)..................................27

Appendix 2: Monthly stock price data for 120 months...........................................................28

Appendix 3: Size Data for 120 months....................................................................................28

Appendix 4: Book value to Market Value data for 120 Months.............................................28

Appendix 5: Stock Price Data for 120 Months........................................................................28

Appendix 6: Investment Price data for 120 Months................................................................28

Appendix 7: Profitability data for 120 Months........................................................................28

Appendix 8: Panel A. Equal Size.............................................................................................29

Appendix 9: Panel B Size and Investment...............................................................................29

Appendix 10: Panel C Size and Profitability...........................................................................29

Appendix 11: Panel D Size and Book/Market.........................................................................29

viii
 ABBREVIATION AND ACRONYMS

ADX: Average Directional Index

APT: Arbitrage Pricing Theory

ARDL: Autoregressive distributed lag

AMEX: American Express Company

CAPM: Capital Asset Pricing Model

HML: High Minus Low, return spread between high book-to-market and low book-
to-market stocks

MACD: Moving Average Convergence/Divergence

NASDAQ: National Association of Securities Dealers Automated

NYSE: New York Stock Exchange

RSI: Relative Strength Index

SMB: Small Minus Big, return spread between small cap and large cap stocks

WML: Winners Minus Losers, return spread between past

WRSO: Williams % Range, the Stochastic Oscillator,

ix
 DEFINITION OF TERMS

Price Bubble: Large price decline after a large price increase or, a crash after a
boom (Condorelli, 2018)

Book Common Equity: Book value of stock holders’ equity plus balance sheet differed
taxes and investment tax credit, minus the book value of preferred
stock. (Adebambo & Yan, 2016)

Book to Market Equity, Ratio of book common equity to market equity at the year end.
(Wahal, 2017)

Excess return A return that is larger than some benchmark, especially the
market portfolio risk-free return, (Farlex Financial Dictionary,
2012).

Operating Profitability: Is the ratio of net profit and book equity of a firm in a given year.
(Huang, 2016)

Investment: Is the measured of the change in total assets from the fiscal year
from the base year.(Huang, 2016)

Share Price Momentum: Price differences for a fixed time interval Condorelli, (2018)

Firm Size Is the excess returns of smaller firms (by market\capitalization)

relative to their larger counterparts. Market capitalization (full or
free float)

Value: Is the excess returns to stocks that have low prices relative to their
fundamental value measured by Book to price, earnings to price,
book value, sales, earnings, cash earnings, net profit, dividends,
cash flow. (Mghendi, 2014)

Efficient market: A market in which prices always “fully reflect” available

information (Fama, E., 1970)

x
 ABSTRACT

Share price momentum leads to price bubble and decline in profits after bubble bust. The
main objective of the study will be to investigate the effect of risk factors on share price
momentum in all the 64 Companies listed at the NSE in the period of 2010 to 2020. The
factors in the study are based on financial theory and results of previous studies, Fama French
model identified five significant factors affecting returns. The general objective of this study
will be to assess the effect of the Fama French five factor model on Share Price momentum
(the magnitude and speed of price changes) of stocks listed at the NSE in the long run.
Specifically, the study investigates whether: market risk premium, company size, book to
market equity, profitability and investment have an influence on share price momentum of
stocks listed at the NSE. Share price stability is useful for investment decision making. Asset
price volatility is a component of momentum profit. Share price is often destroyed by the
burst of an asset price bubble or a disruption in economic activity and is often followed by a
financial crisis. Analysis of risk will help detect and minimize the effect of share price
momentum. This study will use panel data and regression analysis and autoregressive
integrated moving average model (ARIMA) of controlled variables and Fama-Mac Beth
portfolio formation methodology. Secondary data will be obtained from NSE database. In the
case of price momentum, investors, retirees, portfolio managers, regulators and policy
makers, would like to take appropriate countermeasures. Investors, retirees, and portfolio
managers would seek to rebalance their portfolios in view of Fama French Model factors.
While the regulators and the policy makers could adopt appropriate policies to limit the
damage to the real economy.

xi
 CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Stock price momentum draws considerable attention from investors. According to
Arshanapalli & Nelson, (2016) asset prices volatility and changes are a component of
momentum profit. Risk has been proposed to affect stock price momentum and stability of
stock market due to trading strategies adopted leading to momentum profits or loses.
According to Chan et al., (1996), Kothari & Ball, (1993) and Zarowin (1990) momentum is
affected by the systematic risk of contrarian portfolios and the size effect after controlling for
other risk factors. The share price momentum is based on market efficiency. Capital market
theories use risk return relationship. Behavioral finance theory explain the overreaction and
under reaction effect on price momentum. Spillover refers to the extent to which a message
influences beliefs related to attributes that are not contained in the message. Other theories
are Exchange rate theory which says that exchange rate transmission mechanism will work
on the stock market in a certain extent, and the investor’s expectation theory which states that
investors have similar expectations which reflect on their investment. There is little empirical
evidence from capital market theories to explain share price momentum at the stock
exchange.

There are a number of studies that look at the effect of risk factors on share price momentum.
Bernstein et al., (1986) assessed winning and losing organizations' risk and size among US
markets specifically, they consider strategies with formation periods and holding periods of
between one and five years examined the momentum effect, and discovered that neither risk nor
size played any role. In 2008 after the collapse of global financial services firm the Lehman
Brothers Inc in New York, turmoil in financial markets around the world began. Among the
effects included massive failures of financial institutions and a staggering collapse in asset values
in developed and developing countries. The crush of the US stock market triggered a wave of
uncertainty and panic in stock prices around the world. Studies on market Crushes and booms in
securities markets have showed significant correlation with price momentum (Aug 2002). Present
value models persistently fail to explain asset price levels.
Using a three-factor model of returns, Fama and French (1996) found that the price momentum
over the intermediate term could not be explained. In their studies, they attempt to find out how
stock market reacts to an information and concludes that in efficient market, as soon as an
information is released, the price will react instantaneously according to the given information
available in the market. Thus, the earnings momentum anomaly subsumes the price momentum
anomaly but is not itself subsumed by the price momentum anomaly.
Ackert and Deaves (2010) as quoted by Boussaidi & Dridi, (2020) stated that, to adjust for risk, all
tests of market efficiency require the use of an asset-pricing model. To adjust momentum profits
for risk, we use the recent Fama and French's five-factor model (2015). Following empirical tests
there is growing evidence that risk factors affect returns. The literature has progressed from a
models ranging from a single element to multiple ones.. The factors include the price/earnings

1
ratio (Basu, 1977), company size (Banz, 1981), book-to-market equity (Fama and French, 1992)
and a variety of other systematic influences on security prices (Dimson and Mussavian, 1998).
Berk, Jonathan Green, Richard Naik, (1998) in a study on Optimal Investment, Growth Options,
and Security Returns found that share price momentum arose because of persistent systematic risk
in a firm's project portfolios.
1.1.2 Share Price Company Listings on the NSE: Current Trends
According to NSE Hand Book (2005) Share price is used as a benchmark to gauge performance of
a firm and its variations as an indicator of the economic health or otherwise of a firm hence the
need to be conversant with the factors that could adversely affect share prices. Changes of Stock
Share Price Returns from equity investments are expected to vary owing to the movement of share
prices, which depend on various factors which could be internal or firm specific such as earnings
per share, dividends and book value or external factors such as interest rate, GDP, inflation,
government regulations and Foreign Exchange Rate (FOREX) and risk factors. Share prices are
highly affected by the business fundamentals, which are either economic or political.
Otinga, (2017) In a study on Effect of price volume momentum on the Nairobi Securities
Exchange's stock returns with independent variables Volume momentum and dependent variables
Momentum Returns using Jegadeesh and Titman methodology concluded that momentum returns
were found to exist at the NSE even though in the short run, three to six months.
1.1.3 Background of the Nairobi securities exchange
The Nairobi Securities Exchange (NSE) was established in 1954 as Nairobi Stock Exchange. It
was registered as a voluntary association of stock brokers under the societies act Trading took
place on a ‘gentleman’s agreement. The NSE is a member of the African Stock Exchanges
Associations (ASEA). It is Africa's fourth largest stock exchange in terms of trading volumes, and
fifty in terms of market capitalization as a percentage of GDP. The Exchange works in cooperation
with the Uganda Securities Exchange and the Dar Salaam Stock Exchange including the cross
listing of various equities (NSE Handbook, 2008).
1.2 Statement of the Problem
Share prices volatility and changes are a component of momentum profit which is considered by
researchers. Share price is often affected by the burst of an asset price bubble or a disruption in
economic activity and is often followed by a financial crisis. The intervention cost of cleaning
after a financial crisis is very large and the recovery of wealth is often sluggish due to lag effect
and leads to losses. Researchers haven't found any methods for detecting bubbles according to
Fama & French, (2017). According to Financial Times (2007) massive amounts of wealth were
wiped off all the major stock markets every day; a typical illustration of the crisis was the 54% fall
in the Dow Jones from its peak in 2007. These moves triggered selling by the funds as they

2
attempted to cover their losses and meet margin calls from banks. This in turn exacerbated the
share price movements.
Ozkan and Unsal (2012) observe that the global financial crises that took place in the 2000's were
triggered by problems in the developed economies that quickly spread to developing economies.
The Nigerian Stock Exchange (NSE) Market All-Share-Index (ASI) had a loss of 67.67% of its
value from March 2008 to 27th April 2009 (Kighir, 2009) and the Market Capitalization after
reaching N12.6 trillion in March 2008, loss about 70% (Gwarzo, 2016). Due to their heavy
involvement in the NSE, the Nigerian commercial banks’ non-performing loans rose by 417.87%
from 7.19% in 2008 to about 37.25% in 2009 and capital-asset ratio dropped by 77.28% from
17.95% in 2008 to 4.08 in 2009 (World Bank, 2019). Empirically, there is evidence that the
evolution of NSE stock prices prior to the crash was consistent with the behavior of bubbles (Agu
& Chukwuma-Agu, 2010; Njiforti & Chidiogo, 2010; Almudhaf, 2017).
Protection of investors encourages participation in share trading and enhances the development of
financial markets (La Porta et al, 1998). According to Karungu, Memba, & Muturi, (2018a) the
Kenyan economy has been growing at 1.5%, 2.7%, 5.8%, 4.3%, 4.6%, 5.7% and 5.3% for the
years 2008 through to 2014, while the NSE indices have not been reflecting this trend (KIPPRA,
2013) the NSE 20 share index declined in 2009, increased in 2010, decreased in 2011 and
increased in 2012. The NASI decreased in 2009, increased in 2010, decreased in 2011 and
increased in 2012 (KIPPRA, 2013) Several Some firms have been taken from the Nairobi Stock
Exchange's list: in 1995, for example, Cooper Motor Corporation (CMC) Holdings, the year 1996
Lonrho Motors, the year 2000 African Lakers Corporation. National Mills, the year 2002 East
Africa Packaging, the year 2006 five companies Uniliver Tea, Williamson Tea, Kakuzi, Uchumi,
NIC Bank, BOC Gases, the year 2007 TPS Eastern Diamond Trust, Sammer Africa, Total Kenya,
2008 Centum Investment, 2010 East Africa Cables Ltd 2014 Mumias sugar co. ltd
Berk, Jonathan Green, Richard Naik, (1998) state that share price momentum arose because of
persistent systematic risk in a firm's project portfolios. Engle (1982) sated if we can capture
predictability in volatility, it may be possible to improve portfolio decisions, risk management,
option pricing, among others. There is some evidence to show that the global version of the factor
asset pricing model is not entirely compelling and that local versions can provide additional
insights into key factors and that local versions might provide further insights regarding relevant
factors. Fama French risk variables were not taken into account in Kenyan studies. Though
through the literature we have established the relation between the risk factors and share price.
This study tests the effect of Famma frech Risk factors on share price momentum in Kenya which
is a developing country
1.3 Objectives of the study

3
1.3.1 General objective
The general objective of the study will be to evaluate effect of the dangers of Fama French food
share price momentum among listed firms at Nairobi Securities Exchange Kenya.
1.3.2 Specific Objectives
The specific objectives of the study will be:
1. To determine whether or not premiums charged by the Nairobi Securities Exchange Kenya
have an impact on share price momentum.
2. Identify the impact of market capitalization on stock value momentum across Nairobi
Securities Exchange Kenya listed companies.
3. To analyze Nairobi Securities Exchange Kenya's book equity to market equity ratio and the
resulting share price momentum was conducted.
4. Identify whether Operating Profitability has an impact on Stock Price Momentum at the
Nairobi Securities Exchange Kenya
5. To find out how investments at the Nairobi Securities Exchange Kenya affect share price
momentum.
1.4 Research hypothesis
HO1 Market risk premium does not significantly influence Share price momentum of
Companies listed at the Nairobi Securities Exchange (NSE) in Kenya.
HO2 Size does not significantly affect Share price momentum of Companies listed at the
Nairobi Securities Exchange (NSE) in Kenya.
HO3 Book equity-to- market equity does not significantly relate to Share price momentum of
Companies listed at the Nairobi Securities Exchange (NSE) in Kenya.
HO4 Operating profitability does not significantly determine Share price momentum of
Companies listed at the Nairobi Securities Exchange (NSE) in Kenya.
HO5 Investment does not significantly affect Share price momentum of Companies listed at the
Nairobi Securities Exchange (NSE) in Kenya.
1.5 Justification of the study
This study will seek to establish the influence of Franco-French uncertainty on the direction of
profit growth. This will ensure the most significant risk factors are addressed. This therefore
means that proper risk management processes will be put in place to avoid financial crisis
triggered by momentum in share price. It will help investors is to optimize profits, Institutional
regulatory bodies will help put in place policies to safeguard investors’ interests. Policy makers
can use the findings of the study to enact legislation. It will add to the existing literature on
momentum profits.
1.5 Scope of the study

4
This study will cover the companies in Nairobi Securities Exchange (NSE) for the years 2010 to
2020. According to NSE (2020) there were sixty-four (64) listed companies in the main segment
of NSE by December 2020 (Appendix I).

5
 CHAPTER TWO
LITERATURE REVIEW
2.1 Capital Market Theories
2.1.1 Portfolio theory
Roy (1952) showed why it is a good thing for the property owner to disperse both his assets and
liabilities, a principle that is always accepted in practice but rarely explained satisfactorily, the
same problem was later addressed by Markowitz. Roy represented the problem, with risk as the
independent variable and expected return as the dependent eventually its Markowitz who is
generally regarded as the originator of portfolio theory.
Markowitz, (1952) and as stated by Tobin (1958), for a given amount of risk, an investor can
design a portfolio with different assets to maximize returns. This is known as the modern portfolio
theory (MPT). Investing in portfolio rather than individual assets, investors could lower the total
risk of investing without sacrificing return, as an additional asset is made to an investment
portfolio as measured by the variance or standard deviation of total return decline continuously.
According to Markowitz in trying to make variance small it is not enough to invest in many
securities. According to Markowitz, simply investing in a large number of securities will not help
keep the variation low. The portfolio with the highest predicted return isn't always the one with the
lowest level of volatility. Securities with substantial correlation among themselves should not be
invested in. Tobin (1958) built on Markowitz's theory by including a risk-free asset in the
equation. This theory explains how rational investors in perfect markets can minimize the risk
associated with their investments without reducing their returns through diversification and by
building up an efficient portfolio of investments. Early work developed necessary conditions on
either the utility function of investors or the return distribution of assets that would result in mean
variance theory being optimal. Lee, (1977); Kraus and Litzenberger, (1976) offered alternative
portfolio theories that included more moments such as skewness or were accurate for more
realistic descriptions of the distribution of return however mean variance theory has remained the
cornerstone of modern portfolio theory despite these alternatives.

MPT provides a framework to construct and select portfolios based on the expected
performance of the investments and the risk appetite of the investor. Through manipulating
risk determinants, investors stand a chance of increasing their returns since they minimize the
risks. The risk and return of any given stock can be duplicated in many ways through manipulation
of risk factors. This study seeks to establish the relationship between the risk determinants and
share price momentum with an aim of coming up with better management of risks at the time of
share price movement.

2.1.2 Efficient Market Hypothesis (EMH)

6
Fama, (1970) stated that stock prices are a reflection of all available information in the capital
market and are traded at their fair value at all times making it impossible to choose stocks that will
beat the returns of the overall market. In the event of fresh information becoming available, it
spreads swiftly and is immediately reflected in the price of shares. Investors can achieve higher
returns by selecting "undervalued" stocks, according to the theory, which states that the study of
past stock prices is an attempt to predict future prices known as technical analysis. Neither this
theory nor fundamental analysis, which is the analysis of financial information such as company
earnings and asset values, etc., helps investors select "undervalued" stocks.
EMH completeness was studied by Malkiel, (1973), who focused on the theory of random walk
hypothesis, a stock market theory that says past price movement or direction cannot be utilized to
forecast future market movement. Stock-price determination contains psychological and
behavioral factors, and it was concluded that future stock prices can be predicted using past stock
price trends and some “fundamental” valuation indicators. In the stock exchange market, the
random walk hypothesis leads to the Efficient Market Hypothesis (E.M.H.). Bachelier (1900) cited
in (Dimson & Massoud, 2000) incorporated the concept of Brownian motion in finance theory,
which stated that “past, present and even discounted future events are reflected in market price, but
often show no apparent relation to price changes”.
There are "too many" consecutive moves in the same direction for Lo & MacKinlay (1999) to
reject the hypothesis that stock prices behave as random walks, and they find that short-run serial
correlations aren't zero. Short-term stock prices appear to be gaining traction. In addition, Lo,
Mamaysky and Wang (2000) also find that some of the stock-price signals used by "technical
analysts" such as "head and shoulders" formations and "double bottoms" may actually have some
modest predictive power, using sophisticated nonparametric statistical techniques that can
recognize patterns. Short- and long-term stock price predictions are based on the efficient capital
market theory.
2.2 Asset Pricing Theory
Capital market theory followed modern portfolio theory by Markowitz, as researchers explored
the implications of introducing a risk-free asset.
2.2.1 Capital Asset Pricing Model
A market value theory that takes risk into account was developed by Treynor in 1961. The
CAPM's main tenet is that diversifying one's investment portfolio can reduce one's overall
exposure to risk. In other words, the expected return on investment (ROI) is equal to the total of
both the risk-free rate of return and the risk premium resulting from an investment's sensitivity to
market risk.
The capital asset pricing model was proposed by Sharpe and Lintner in 1964 and 1965,
respectively. Security returns are assumed to be linearly related to market-wide index fluctuations,
with a specified sensitivity level, while security-specific returns are created with a known mean

7
and variance. This model implies that. The risk measurement and portfolio optimization chores are
made much simpler by using only three factors per security.
Brennan & Modigliani, (1970), finds that the structure of the original CAPM is retained when
taxes are introduced into the equilibrium. Meyers (1972) shows that when the market portfolio
includes non-traded assets, the model also remains identical in structure to the original CAPM.
The model can also be extended to encompass international investing, as in (Solnik & Longin,
1995). The theoretical validity of the CAPM has even been shown to be relatively robust if the
assumption of homogenous return expectations is relaxed, as in Williams (1977). Finally, there are
extensions from the classical one-period setting to a continuous time environment.
For the first time, the CAPM was put through its paces by Black et al., (1972). When the authors
examined the correlation between mean excess returns and estimated betas, they discovered that
the two variables were linearly related. This could be a sign of a CAPM of some sort. A second
problem is found by the researchers who discover that "the intercept and slope of the cross-
sectional relation changed over different sub periods and were not consistent" According to
Merton (1973), time runs continuously, hence he created an Intertemporal CAPM (ICAPM). Both
in equilibrium asset pricing and derivative valuation, the continuous time framework has proven to
be a major development in modern finance.
As Merton (1990) theory advocates that the investors aim at reducing their risks while increasing
their returns and thus they should diversify. Through manipulating risk determinants, investors
stand a chance of increasing their returns since they minimize the risks. The risk and return of any
given stock can be duplicated in many ways through manipulation of risk factors.
According to (Kale & Akktya, 2015). Even though, this model was mirrored by subsequent
studies such as Black et al., (1972)and Fama and MacBeth (1973) they were refuted since risk was
not the sole determinant of stock return Malkiel (2003) points out, it may be that the CAPM fails
to take into account all the appropriate aspects of risk.

Capital asset pricing model goes on to formalize the relationship that should exist between asset
returns and risk if investors constructed and selected portfolios according to mean-variance analysis.
It is based on the principle of CAPM, which employs risk to calculate returns, that Fama French
risk variables affect momentum share prices.

8
2.2.2 Arbitrage Pricing Theory (APT)
Applied Probability Theory (APT) looks at the connection between risk and reward. It's predicated
on the idea that different types of risk have different effects on actual returns. In general economic
conditions, the APT risk characteristics do not exist, and they do not apply to a single organization.
Arbitrage pricing theory (APT), established by Ross (1976), is an alternative model that may be
able to address the CAPM's shortcomings while yet maintaining the central message of the
CAPM. The APT's central tenet is that just a few systematic factors have a significant impact on
long-term average stock returns. A factor model is the first step in Ross's APT. Which enables an
asset to have a variety of systematic risk measures rather than simply one.
Arbitrage Pricing Theory (APT) is based on Ross' (1976) proposal that only a small number of
"factors" effect long-term average returns on securities. APT says that the expected return on a
financial asset can be represented as a function of different macroeconomic conditions or
theoretical market indices. APT. Multi-factor models were the models that Ross popularized. This
technique has the advantage of identifying elements from datasets that account for an important
share of risk over a certain period of time.
A statistical technique called factor analysis is used by Ross & Roll (1980) to derive factors from
security return data. According to their findings, the stock market in the United States has four
different priced components to consider. It is advantageous to use factor analytic approaches since
many of the hazards in a given dataset during the time period can be explained by factors found in
the data. The problem with factors is that they are frequently unexplained in economic terms.
When it comes to the underlying elements, as Roll and Ross say, "an attempt should be made to
discover a more relevant set of sufficient data"
According to Chen, Roll, and RAoss (1986), we can conceive that asset prices are determined by
some fundamental valuation model at the most basic level. That is to say, the price of a stock will
be equal to the discounted future dividends correctly expected by investors. If future dividends are
systematically influenced, traders and investors' expectations of them should be taken into
consideration when choosing factors, as should the rate at which investors discount future cash
flows. According to their findings, the price of US stocks is closely linked to variations in
industrial production, the yield spread between short- and long-term government bonds, the spread
between low- and high-grade bonds, and changes in expected and unexpected inflation.
Jecheche (2011) used time series data from 1980 to 2005 within a vector autoregressive (VAR)
framework to conduct Granger causality tests to prove the existence of causality between variables
such as inflation, exchange rate, and GDP of the Arbitrage Pricing Theory for the case of
Zimbabwe. The Granger causality tests indicated no significant correlations between the stock
price and the exchange rate, but when impulse response functions are taken into account, the
influence is already considerable in the beginning of the period of time.
2.2.3 The Black-Scholes Model
The contribution of the option pricing model by Black and Scholes (1972) Based on CAPM's core
concepts, it's referred to as the Black-Scholes (B-S) Option pricing model. The introduction of the
B-S model, which can be used with various financial assets such as bonds and foreign currencies,
broadened the application of pricing models. Black-Scholes Model is comparable to the CAPM
and is used to price call options in efficient markets, but may also be used to determine put option
prices, such as American put option pricing, to determine (Weston and Copeland 1992)

9
In order for this model to be used by corporate globe exchange investors as a price forecasting
investment technique, investors must know the systematic pattern of deviation for the individual
investment. To quote Hong (in 2004), We can forecast future cash flows and estimate an asset's
net present value using a discounted cash flow model thanks to the Black-Scholes model, which is
utilized in financial engineering.
2.2.4 Fama French 3 Factor Model (3FF)
Other than beta, French (1993) offered a three-factor model that incorporated other variables (such
as book-to-market equity equity) that had a negative association with average return. When it
comes to average returns and market capitalization, the FF model takes into account the
relationship between price and the number of outstanding shares, as well as the relationship
between price and price ratios such B/M. It says that the expected return on a portfolio above the
risk-free rate is explained by three factors: i) the excess return on a broad market portfolio (ii) the
difference between the return on a portfolio of small stocks and a portfolio of large stocks (high
minus low).
The time-series regression approach of Black, Jensen, and Scholes was employed by Fama and
French (1993) in their research (1972). Returns on an equity market portfolio are regressed
monthly. Fama and French (1993) components were shown to be unique by Carhart (1997), who
found that the momentum factor increased the explanatory power of multifactor models designed
to explain mutual fund performance.
Some non-traditional characteristics of a company's stock include things like the number of
"Google" hits a stock receives or how often it is discussed in the mainstream media, in addition to
classic metrics like earnings revisions and accruals on the income statement and balance sheet.
2.2.5 Fama French 5 Factor Model (5FF)
In order to create a five-factor model, Fama and French (2015) added two elements to the Fama-
French three-factor model. The model discovered five potential sources of volatility in bond
returns. Firm size and book-to-market equity are two stock market factors related to the overall
stock market factor. Maturity and default risk are two important bond market characteristics. The
addition of the momentum factor was prompted by the findings of Fama-MacBeth regressions.
State security prices, according to Greenwood, Shleifer, and You (2019), don't demonstrate price
bubbles, but rather a "irrational big price increase that implies a foreseeable strong collapse. Stocks
or portfolios that have gone up substantially in price, then, going forward, returns on average are
not un- usually low. (Fama, 2014) Evaluated Eugene Fama's claim that stock prices do not exhibit
price bubbles, the findings are correct in that a sharp price increase of an industry portfolio does
not, on average, predict unusually low returns and such sharp price increases predict a
substantially heightened probability of a crash; also attributes of the price run-up, including
volatility, turnover, issuance, and the price path of the run-up, can all help forecast an eventual

10
crash and future returns; and fourth some of these characteristics can help investors earn superior
returns by timing the bubble. Results hold similarly in U.S. and international samples.

11
2.3 Conceptual Framework

Independent variables

Risk Factor
Risk premium on the market portfolio
Returns in excess of the risk-free rate

Size effect (Market capitalisation) Dependent Variables

Price times shares outstanding

Price Momentum
Relative strength Indes
Value effect (Book Value of Equity to Market (RSI)
Value of Equity) (log B/M) Moving average
Coverage/Divergence
(MACD)

Profitability
Operating profitability, defined as revenues
minus COGS, minus SG&A scaled by book
equity (OP/BE)
Figure 1: Conceptual Framework
Source: Self conceptualization 2021

Investment
2.4 Empirical
(Annual Review
increase in total Asserts)
Share price is a component of momentum profits. The empirical review explain that risk is the
main predictor variable in asset returns some studies have gone ahead. The subject of risk has
attracted a lot of intrest among researchers this section covers the many studies covering risks and
the various differing results.

2.4.1 CAPM vs Share price momentum

Theriou, Maditinos, & Chatzoglou, (2003) conducted a study on the cross-section of expected
stock returns : in the Athens Stock the study tested the ability of the capital asset pricing model as
well as the firm specific factors, for the period from July 1993 to June 2001, using the model’s
regression equation , to explain the cross-sectional relationship between average stock returns and
risk in Athens Stock Exchange (ASE), the study findings indicate that in the Greek stock market
there is not a positive relation between risk, measured by β, and average returns. There is a “size
effect” on cross-sectional variations in average stock returns, however, and this analysis
demonstrates a substantial positive relationship between average returns and the “book-to-market

12
effect” when this variable is the only one used to explain average returns. In cross-sectional
regressions, however, other explanatory variables reduce the "book-to-market effect" significantly.

The author, Zhang (1967) Diamond prices and money supply were analyzed to see if they
explained Congo's stock prices between 1960 and 1966 using provincial panel data. He used
information from a provincial panel. Both variables had an effect on stock prices, according to the
findings. He came to the conclusion that diamond prices and stock prices have a strong and
favorable relationship. As a result of this, the collected data is skewed, especially for emerging
countries where the economic structure varies widely.

Small enterprises with fewer institutional owners, growing firms, and firms with high volumes
have higher momentum, according to Grinblatt and Moskowitz (2003). Hou (2001) claims that the
sluggish spread of information among countries explains the high industry momentum. Find out
by listening to this: ( 2006) There has been little research into how share price momentum in
Africa's emerging and frontier markets differs from that found in developed markets, so this paper
presents a capital asset pricing model that incorporates both size and liquidity.

Using data from Kenya's developing market, Mumo, (2017) looked into the sources of risk factors
that affect stock returns. Specific goals included determining the validity of CAPM and
empirically testing for factors that influence Kenyan stock returns. Monthly time series data from
April 1996 to December 2016 were used in the analysis. The research employed a multifactor
method and a two-step data analysis procedure developed by Fama and MacBeth (1973).
According to the study's findings, the Capital Asset Pricing Model (CAPM) cannot be ruled out,
and the market premium in Kenya is the most important factor explaining stock return variability.

2.4.2 Fama French Three Factor model (3FF) vs Share Price Momentum

This research looked at how capital structure affects stock price (Muthukumaran, 2012). The
research conducted a step–wise regression analysis of sample stock returns against the returns of
five risk indicators, such as market risk, size, value, momentum, and leverage, for the study. For
this study, leverage was utilized to determine where stocks should be allocated in four different
portfolios. It looked at both portfolios individually and as a whole. Using step–wise regression
analysis, we looked at how the independent variables changed in explanatory power (i.e.,
statistical significance and numerical value of the parameters). These models were put to the test in
this study: the leverage risk factor in a univariate model; capital asset pricing model; Fama and
French model; the Carhart four-factor model; a five-factor version of the latter model. In his
research, he found that the information content of the leverage risk factor is significant, and it
contributes significantly to the explanation of stock return.

Fama and French (1993) looked at the NYSE, AMEX, and NASDAQ from 1963 to 1990 and
found some interesting results. the excess return of the market above the risk-free rate, a size factor

13
(SMB), and a book-to-market equity component best explain the projected return on a stock
(HML). Affirmed by Fama and French, proxies for risk should include not only beta (as assumed
in the CAPM), but also company size and book-to-market value (i.e. value stocks). According to
Fama and French, small-cap and book-to-market value-heavy firms are more dangerous than their
larger counterparts (i.e. growth stocks). Aside from that, the Three-Factor Model and CAPM both
use the same basic concept. The level of systematic risk associated with every given security in the
financial market is therefore supposed to be priced, and an arbitrage mechanism is assumed to
avoid long-term price deviations from this assumption. the Several studies (Jagannathan et al.,
1997) have found some evidence that future returns in Japan are determined by factors in both
factor models and characteristics models. The three-factor model can be rejected for Japanese
common stock data from 1975 to 1997, but not for the characteristics model, according to (Daniel
et al., 1999). According to Ferson & Harvey (1999), future returns are determined by both a factor
model and a characteristics model on a global scale.

Kruger & Lantermans, (2010) Examined Risk, Book to Market and Size Effects in the South
African Stock Market for a period of ten years 1996 up to 2006. The study used regression
methodology sampling 132 companies, the study concluded that Risk and the Book to Market
ratio are not significant predictors of Return and Firm Size (market capitalization) is the variable
best able to predict Return. The study recommended future studies could also use a method that
incorporates macroeconomic variables into the analysis. The study also recommended future
studies to find out if there is a significant relationship between firm size and return in medium risk
company groups – as this was not found in the high nor the low-risk sub-samples tested but was
found in the overall sample. The study recommends a study of survival bias, studying only those
companies that were not listed for the full period of study which could limit their experience may
be indicative and affect the results.

Rebeca Cordeiro & Márcio, (2018) investigated the influence of future expectations of the book-
to-market ratio (B/M) and return on equity (ROE) in explaining the Brazilian capital market
returns, the study analyzed the explanatory power of risk-factor approach variables such as beta,
size, B/M ratio, momentum and liquidity. The study sampled the non-financial companies with
shares traded at Brasil, Bolsa and Balcão, from January 1, 1995 to June 30, 2015. The findings
show that with respect to risk factors approach variables, the authors verified the existence of size
and B/M effects and a liquidity premium in the Brazilian capital market, during the period
analyzed. This study was limited to Brazilian capital markets this way the recommendations are
limited to the samples used the current study is focused on the Nairobi Securities Exchange.

(Njogo, 2017) did a study to establish the effect of equity risk factors on the return of stock
portfolios of companies listed at the Nairobi securities exchange in Kenya between 2009 and
2014. The study adopted the explanatory research design and the target population was 45

14
companies that were listed at the Nairobi securities exchange by January 2009. The study
employed a modified Fama and French (1996) multivariate time series regression methodology
and the explanatory research design. The study found out that market risk, size risk, value risk and
investment risk have a significant effect while profitability risk and momentum risk have a weak
positive effect on the return of stock portfolios at the Nairobi securities exchange.

Shaker and Elgiziry, (2014) evaluates different asset pricing models, namely the CAPM, Fama
and French three- factor model (thereafter, FF3 model), momentum-augmented FF3 model,
Liquidity- augmented FF3 model and momentum and liquidity-augmented FF3 model. Although
they find that FF3 model performs the best based on the GRS test, the authors conclude that their
results are not satisfactory compared to other studies. This motivates us to suggest a multi-factor
asset pricing model that explains and forecasts stock returns in the Kenyan stock market.

2.4.3 Fama French Five Factor Model (5 FF) vs Share Price Momentum
Wahal, (2017) Examined the profitability and investment premium in stock returns using hand-
collected data from Moody’s Manuals for 1940-1963. The study uses panel data and partial
regression analysis of controlled variables (Fama-MacBeth regressions). The results indicate, one
the profitability premium in 1940-1963 is similar in magnitude to the post-1963 period. Second,
no reliable relation between investment and returns, regardless of whether investment is measured
using growth in total assets or book equity.

Tahir et al., (2013) tested the Fama & French Five-Factor Model (5FF) and the Three-Factor
Model (3FF) on stocks listed in the LQ-45 Index over the 2013-2015 periods, using a multiple
linier regression analysis model in the form of panel data for the entire portfolio and each formed
portfolio. The study concluded that Profitability has a positive effect but not significant on return.
Size and investment have a significant negative effect on return. The difference in yield lies in the
profitability factor, whose effect is not significant on return.

Taha & Elgiziry, ( 2016) Studied an extended five-factor asset pricing model in Egypt, apart from
market, size and book-to-market, the study investigates whether earnings-to-price, sales-to- price,
dividends-to-price, liquidity and momentum are priced risk factors. Factors were formed using
Fama and French (1993) methodology. The study used least squares time series regression is run
using HAC Method-Newey and West (1987) on a sample of 55 companies from between 2003 to
2013. The study finds significant size and value effects. Book-to-market does not absorb the role
of earnings-to-price. Liquidity plays an important role. Sales-to-price and dividends-to-price are
redundant. There is no momentum effect in Egypt. The study concluded that a model, which
incorporates market factor, firm size, book-to-market, earnings-to-price and liquidity, yields better
results than other models. This study main contribution is to examine the effect of five-factor asset
pricing model on share price momentum in Kenya.

15
Wijaya, Irawan, & Mahadwartha, (2018) tested the Fama & French five factor-model on
Indonesian stock market, used a multiple linier regression analysis model on panel data for the
entire portfolio and each formed portfolio concluded that market risk premiere has significant
effect on return. Profitability has a positive effect but not significant on return. Size and investment
have a significant negative effect on return. The difference in yield lies in the profitability factor
whose effect is not significant on return. This is consistent with (Fama & French, 2018) who tested
the performance of the Five-Factor Model (5FF) in predicting the excess return of stocks listed in
the United States. The pattern of a negative correlation between size and investment to return was
found in all portfolios. Meanwhile, B/M and profitability had a positive correlation to return. Fama
& French also conducted tests to determine the return using 5FF. The test results showed the 2 x 3
factor (Size-B/M, size-OP, size-Inv) is the best. Through simultaneous test, it was found out that
the high minus low (HML) portfolio or book to market (B/M) variable has no correlation on the
5FF model because the high average return rate of HML, as reflected by other dependent
variables. Chiah, Chai, Zhong, & Chai, ( 2015) used book-to-market ratios and measures of
profitability and investment in the Fama-French five-factor model, asset growth as a proxy for
investment, to measure profitability, he used return on equity (ROE) in his findings establish
evidence of common components in asset returns.

According to Greenwood et al., (2019) Fama does not specify whether the term “bubble” applies
at the individual stock, industry, or market level, and the industry or sector perhaps is not his ideal
unit of analysis. However, the two examples cited in his Nobel Lecture include the .com bubble of
the 1990s and the real estate boom of the 20 0 0s. We study industries for three reasons. First, most
historical accounts of bubbles have a strong industry component. The White (1990) descriptions of
the 1929 stock market boom and subsequent bust, for example, emphasize utilities and
telecommunications stocks and suggest that old-economy railroad stocks languished. The stock
market boom of the late 1990s was concentrated in .com stocks, which far outperformed the value-
weighted index (Ofek and Richardson, 2003). Second, analyzing industries gives us more
statistical power than analyzing the entire stock market, although many of the price run-ups we
identify occurred during periods of good market performance. For example, in only three episodes
since 1925 has the aggregate US stock market returned more than 100% in a two-year period. 8
Third, we can compare potential bubble industries with other stocks trading at the same time. This
matter because many of the industry features that we study, such as trading volume, vary
substantially over time. This justifies choice of our independent variable.

Paridah et al., (2016) in a study on Comparison of CAPM, Three-Factor Fama-French Model and
Five-Factor Fama-French Model for the Turkish Stock Market, sampling data from June 2000 to
May 2017 finds that the five-factor model explains better the common variation in stock returns
than the three-factor model and capital asset pricing model. Moreover, the CAPM has no power in
explaining monthly excess returns of sorted portfolios.

16
This study extends the asset- pricing tests in Fama and French (1992a) in by using share price
momentum as dependent variable. The goal is to examine whether variables that are important in
stock returns help to explain, and share price momentum. The notion is that if markets are
integrated, there is probably some overlap between the return processes for bonds and share price.

Asset share market is becoming a more and more important part in the international equity market,
which increasingly attracts attention from investors. The research will be able to check consistency
on the empirical evidence with previous research work because of the variation in sample periods,
firms and factor construction methods, which leads to the comprehensive interpretation of
empirical evidence difficult. This study checks how the five risk factors affect the share price
momentum (based on the statistical results of each factor’s coefficient).

2.5 Critique
Wijaya,Irawan, & Mahadwartha, Tahir et el., Chiah,Chai, Zhong, &Chai,Test the Fama & French
5FF and 3FF on stocks listed in LQ-45 the studies employed, Multiple linier regression, these
studies were carried out in different developed countries. Our study will be carried out at the
Nairobi Securities exchange which is a developing country for the period 2010 to 2020. Taha &
Elqiziry used the least square time regression model for a period of ten years in Egypt.

Boussaidi & Dridi, (2020) in a study on momentum effect in the Tunisian stock market: two
controversial explanations for the momentum in the Tunisian stock market were examined in
Tunis Stock Exchange during the period January 1999 through December 2016: the risk
hypothesis and the underreaction hypothesis. The study found a strong evidence of risk-adjusted
momentum profits indicating that the risk cannot explain the momentum effect.

The reviewed studies do not to remove the short run effect of the volatility of the variables, this
study will address the limitation by taking logarithm of the variables. Most of the studies carried
out the analysis using only one model type the ordinary least squares (OLS) or simple average or
simple moving average, which assumes that the mean and variances are intact. In this study we
will use both simple moving average and Autoregressive Distributed Lag (ARDL)

Chordia and Shivakumar (2002), Ahn, Conrad and Dittmar (2003) and Avramov and Chordia
(2005) argue that the price momentum payoffs are related to the business cycle. On the other hand,
Korajcyzk and Sadka (2004) argue that the momentum phenomenon persists due to frictions in the
price adjustment process caused by transaction costs.

2.6 Research gaps

Fama and French (2017), and Griffin (2002) suggested that the global version of the factor asset
pricing model is not overall convincing and that local versions might provide further insights
regarding relevant factors country specific factors. The studies in Kenya have not considered the

17
relationship of Fama French risk factors of market risk premium, size, book equity to market
equity ratio and operating profitability on share price momentum.

According to Ochere, Nasieku, & Olweny, (2018) Prior studies have documented a pattern of
price momentum in the intermediate horizon, in their study on the relation between trading volume
and future returns, liquidity and three factor asset pricing model on excess returns (Price
Momentum and Trading Volume). The pattern of price momentum has not been captured in the
long horizon more so in the context of Fama French risk factors. This study fills the gap by
considering share price momentum in the long run and in the context of Fama French Risk factors.

18
 CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research Design
According to Upagade et al., (2013) research design highlights the plan, structure and the strategy
of integrating the various components of risk and its effects on share price momentum. According
to Sekaran and Bougie, (2011) Research design is the arrangement of conditions from
conceptualization of a problem, writing of research questions, data collection to data analysis in a
way that will aim to combine relevance of research purpose with economic implication. It is the
logical manner by which elements of research are compared and analysed so as to interpret the
data. Research design is a blueprint that guides the process of research from the formulation of the
research questions and hypotheses to reporting the research findings. This Study will use the time-
series regression approach of Black, Jensen, and Scholes (1972) together with the ARIMA
methodology the BJ-type time se-ries models to allow share price momentum (Yt ) to be
explained by past, or lagged, values of Y itself and stochastic error terms.

Monthly share prices on stocks and bonds are regressed on the returns to a market portfolio of
stocks and mimicking portfolios for size, book to- market equity (BE/ME), and term- structure risk
factors in returns.

3.2 Target Population

Population is an entire group of individuals and objects having a common observable
characteristic (Mugenda and Mugenda 2003) (Cooper and Schindler, 2014). Zikmund et al.
(2010) and Kothari (2004) all concur that population is all items in any field of inquiry or
‘universe’. Polit and Beck (2003) refer to population as the aggregate of those conforming to a set
of specifications. Sekaran and Bougie (2011) defines population as the entire group of people,
events or objects of interest that the researcher is to investigate. Lavrakas (2008) explain that a
population is any finite or infinite collection of individual objects.

According to NSE (2018) there were sixty-four (64) listed companies in the main segment of NSE
by December 2018 Appendix I. The target population of this study will be the companies in
Nairobi Securities Exchange (NSE). This study will cover the companies in Nairobi Securities
Exchange (NSE) for the years 2010 to 2020. According to NSE (2018) there were sixty-four (64)
listed companies in the main segment of NSE by December 2020 (Appendix I) This will cover a
long period to cover economic cycles in Kenya since the economic crisis of 2008.

3.3 Sample
According to Kothari, 2004; Sekaran & Bougie, (2014). The sample size is influenced by the
number of factors such as the purpose of the study, size of the population, non-responsive error,
and accuracy of the study. The simplest and appropriate method for deciding a sample size for
given population was described by Sekaran & Bougie, (2016), whose book elaborated the

19
scientific guidelines with a table which facilitate to decide the sample size. This study will cover
the companies in Nairobi Securities Exchange (NSE) for the years 2010 to 2020. According to
NSE (2018) there were sixty-four (64) listed companies in the main segment of NSE by December
2020 (Appendix I).

3.4 Data Collection Instrument

Dawson (2009) defines secondary research as collecting data using information from studies of
other researchers in an area or subject. According to Ember and Ember (2009) secondary data is
one collected by other people.

Table 3.1: Data Type

Variable Data type
Risk Premium on Market Mean annual treasury bill rate and market bond rate
Portfolios
Value Effect Book value of equity and market value of equity
Operating Profitability Revenues, cost of goods sold, selling and general and
administration expenses, interest expenses
Investment Total assets
Share Price Momentum Mean Annual Stock Share prices

According to Condorelli, (2018) Momentum is measured by continually taking price differences

for a fixed time interval. To construct a 10-day momentum line, subtract the closing price 10 days
ago from the last closing price. When the first version of the momentum indicator is a positive
number, the price is above the price "n" periods ago. When it's a negative number, the price is
below the price "n" periods ago. Technical analysts have developed several indicators to calculate
share price momentum: This study, however, will only use the RSI, and MACD probably the most
popular among traders. Price is the logarithm of the reciprocal of the share price share price
momentum are related to the business cycles and mainly reflect the persistence in the time varying
expected returns. The mechanism of stock pricing gives support to the functionality of stock
markets.
3.5 Data Collection Procedure
First, determining the required data according to the variables measured in this study; second,
collecting secondary data of mean treasury bills, book value to market value ratios, total assets and
mean annual stock share prices from the data provider's site; third, processing raw data obtained
from the data provider’s site that matches with need analysis; and fourth, performing data
tabulation in Microsoft Excel. Secondary data will be collected from published financial
statements for 10 years from capital markets authority (CMA) of all the listed companies in NSE.
Using the data collection instrument, the information on specific components will be keyed in on a
daily basis. The data will then be used to construct portfolios that will be keyed in excel program
ready for analysis.

20
3.6 Data Analysis and Presentation
Data collected will be cleaned to make it meet the requirements for estimating and evaluating
momentum share pricing. The study will analyse the data using descriptive and inferential
statistics make model specification and estimation. Secondary data will be tested for normality and
regression analysis undertaken. The data will be organized and computed using excel program in
order to obtain the study variables and will be analyzed quantitatively using regression equations,
which will be solved using statistical tool programme software. Hypothesis testing will be done
based on Fama French models and the share price momentum variables.
The data which includes time series and cross-sectional data will be pooled into a panel data set.
This will be estimated using panel data regression. Multiple regressions will be conducted and the
data converted to their natural logs to deal with the problem of large numbers and eliminate
heteroscedasticity. (Jaroslava & Martin, 2005).
3.6.1 Construction of the Variables
Five Portfolios will be formed based on Fama-French five factor model (1993) as shown in table
3.1. The portfolios will be formed from the listed companies within the duration of January 2010
to December 2020. A firm qualified to be in the portfolio if its active on the stock exchange. The
four risk premiums of Fama and French (2015), SMB, HML, RMW and CMA are calculated
based on four criteria: the firm size, the book to market, the operating profitability and the
investment.
Table 3.2 Construction of Variables
Variable Measure Empirical Support
Risk Premium Ri-Rf Wahal, 2017
Size effect (Market Capitalization)-, price times shares Wahal, 2017
outstanding
Value effect (Book Value of Equity to Market Value of Wahal, 2017
Equity) (log(B/M)
Value effect (Book Value of Equity to Market Value of Wahal, 2017
Equity) (log(B/M)
Profitability- operating revenues minus COGS, minus SG&A, minus Wahal, 2017
profitability, interest expense, scaled by book equity
(OP/BE)
Investment (Annual increase in total assets) (Dirkx & Peter,
Total Assets Fy t-1/ Total Assets Fy t-2 2020)
Price Momentum Relative Strength Index (RSI): - the logarithm Condorelli, (2018)
of the reciprocal of the share price. Average
gain = ((Previous average gain x 13) + current
gain)/14

21
Independent sorts are used to assign stocks into two size groups and three groups according to
B/M, OP, and Inv. Regarding size sorts, stocks are classified into small (S) and big (B).
Considering valuation (B/M), stocks are classified as high (H), neutral (N) and low (L). As for the
operating profitability (OP), stocks are classified as robust (R), neutral (N) and weak (W). Stocks
are grouped into three investment groups (Inv), being conservative (C), neutral (N) and aggressive
(A), and momentum is based on past winners (W), neutral performers (N), and losers (L). The size
factor (SMB) is calculated by three size factors SMBB=M, SMBOP, SMBInv and SMBMOM
given by;
Size-B/M
Size of the Company (Market value of equity)
Small companies Big companies
Ratio of book value Small size/Low value companies (S/L) Big/ low value (B/L)
of equity to its (portfolio one) (portfolio
market value Four)
(Book-to– market Small size/ Medium value (companies) Big size/ medium value (B/M)
value of equity) (S/M) (portfolio two (portfolio Five)
Small size/High value companies (S/H) Big size /high value (B/H)
(portfolio three) (portfolio Six)

Size-Investment
Size of the Company (Market value of equity)
Small Companies Big Companies
Investment (△Asset Small size/Conservative (S/C) (portfolio Big/ Conservative (B/A)
t / Asset t-1) one) (portfolio Four)
Small size/ Medium (S/C) (portfolio two Big size/ Medium(B/A)
(portfolio Five)
Small size/Aggressive (S/C) (portfolio Big size /Aggressive (B/A)
three) (portfolio Six)

Size-Profitability
Size of the Company (Market value of equity)
Small companies Big companies
operating profit Small size/weak Profitability (S/L) Big/ weak Profitability
(Net income) / (portfolio one) (B/L) (portfolio Four)
shareholders’ equity Small size/ Medium Profitability (S/M) Big size/ medium
(portfolio two Profitability (B/M)
(portfolio Five)
Small size/Robust Profitability (S/H) Big size /Robust
(portfolio three) Profitability (B/H) (portfolio
Six)

Size factor:
SMB = (SMB +B/M +SMB profitability +SMB investment)/3, in which

22
 SMB B/M =(SH+SM+SL)/3-(BH+BM+BL)/3;
SMB profitability=(SR+SN+SW)/3-(BR+BN+BW)/3
SMB investment=(SC+SO+SA)/3-(BC+BO+BA)/3;
Value factor: (B/M): HML= (BH+SH)/2-(BL+SL)/2 : Profitability factor: RMW=(BR+SR)/2-
(BW+SW)/2 :Investment factor: CMA=(BC+SC)/2-(BA+SA)/2
SMB (small minus big): average monthly return on the small-size stocks minus the average
monthly return on the large-size stocks; HML (high minus low): average monthly return on the
High-B/M stocks minus the average monthly return on the Low-B/M stocks; RMW (robust minus
week): average monthly return on the robustly profitable firms’ stocks minus the average monthly
return on the weakly profitable firms’ stocks; CMA (conservative minus aggressive): average
monthly return on the low-asset-growth rate firms’ stocks minus the average monthly return on the
high-asset-growth-rate firms’ stocks.
3.8 Descriptive Statistics
Descriptive statistics will be used to determine the statistical properties of the model in order to
select the proper functional form of the model, statistical analysis technique will be used and
mean, standard deviation, skewness, kurtosis, maximum, minimum a value of the variables
overtime will be calculated for secondary data using statistical software.
3.9 Model Specification
Throughout the analysis, we use the global five-factor model of Fama and French (2017) in
Equation (1.1) This choice is motivated by the fact that the model represents the most complete
version of risk models designed to explain patterns in average returns and the failure of the three-
factor models.
Cross Sectional Regression Analysis
Log (Mom Share Pt) = α + β1 In (Size)t + ɛim 1.1
Log (Mom Share Pt) = α + β2BMt + ɛim 1.2
Log (Mom Share Pt) = α + β3Investmentt + ɛim 1.3
Log (Mom Share Pt) = α + β4Profitabilityt + + ɛim 1.4
Log (Mom Share Pt) = α + β1 In (Size)t+ β2BMt+ β3Investmentt+ β4Profitabilityt+ ɛim 1.5
Log (Mom Share Pt) = α + β1 In (Size)t+ β2BMt+ β3Investmentt+ β4Profitabilityt+ 1.6
Time Series Regression Analysis
Log (Mom Share Pt) = αi,t + βmi,t (Rm,t - Rf,t) + βsmb i,t (SMB) + βhml i,t (HML) + εi,t
First-order autoregressive Analysis

Log (Mom Share Pt) = αi,t + βmi,t (Rm,t - Rf,t) + βsmb i,t (SMB) + βhml i,t (HML) + εi,t
The share price momentum is the dependent variable in each regression formulation. Specifically,

23
where: logarithm (Mom Share Pt); Momentum's stock price at a future date will be determined.
Stock Return (Small Minus Big) is the difference between the returns on a diversified stock
portfolio with a high Book to Market and the returns on a portfolio with a low Book to Market;
Stock Return (Robust Minus Weak) is the return on a diversified stock portfolio with high
operating profita minus the return on a diversified stock portfolio with low operating profita.
4.0 Diagnostic tests
Choice of Model
A Hausman test will be used to determine whether to use the fixed effects or random effects model
to address objectives of this study. For value  =0.05 and critical values of 𝜒2 k df. The null
hypothesis is rejected if the Hausman statistic is bigger than its critical value.
Descriptive Statistics
Descriptive statistics are used to summarize the mean, median, maximum, minimum and standard
deviation.
Normality Test
A basic property of normally distributed observations is that they are completely described
statistically by the mean and the variance (i.e., the first and second moments). According to Alan
Greenspan (1997) an assumption of normal distribution for risk calculations leads to a gross
underestimation of risk. If the Sig. value of the Shapiro-Wilk Test is greater than 0.05, the
data is normal. If it is below 0.05, the data significantly deviate from a normal distribution.

Unit root test

The null hypothesis is that δ = 0; that is, there is a unit root—the time series is non-stationary.
To test for unit root, we will use the Fisher-type Augmented Dickey and Fuller (ADF) and the
Fisher-type Phillips and Perron (PP) tests. Dickey and Fuller (1979) unit root tests that can be
arranged in groups by cross section dependence or independence homogenous, or heterogeneous
unit roots that are defined (Phillips‐Perron, 2000).

Correlation test
Serial correlation refers to the situation in which residuals are correlated across time. Correlation
analysis will be used to check which variables were highly correlated so as to avoid the problem of
multi-collinearity which is a common problem in time series data. Testing for serial correlation,
given fixed effects, is done by means of H0: ρ = 0 and HA: ρ > 0. ρ is a linear approximation of
the relationship between the current and the previous period error terms.
Heteroscedacity test
Finance models we assume that disturbances are homoscedastic with the same variances across
time and cross-sections. According to Baltagi (2005:79), this may be a restrictive assumption for
data panels, where cross-sectional units may often be a different size and as a result exhibit
different variation. Assuming homoscedastic disturbances when heteroscedasticity is present will

24
yield consistent estimation results of coefficients that are not efficient. The standard errors of the
estimates will be biased and the inference about the significance of X-regressors may be incorrect.
Autocorrelation Test
The ACF measures how returns on one day are correlated with returns on previous days. If such
correlations are statistically significant, we have strong evidence for predictability. The presence of
Autocorrelation of the residuals is tested by Breusch-Godfrey Serial Correlation LM test. If the
residual is correlated with lagged values, it’s not desirable. The Durbin –Watson, adjusted r-
squared and likelihood ratio will also be used. H 0:ρ=0versusH1:ρ>0.RejectH0
atαlevelifd<dU.That is, there is statistically significant positive autocorrelation.

Test statistics
The t-statistics of the factors co-efficient will be used to test the hypothesis of the study by
indicating whether the relationship between dependent and independent variable is statistically
significant. The t-statistics and the p-value tests the significance of the null-hypothesis. The F-test
will be used to test the null-hypothesis.
Linearity Test
Most statistical models assume that the relationship between different returns is linear. This study
will measure linearity between variables by using Pearson’s correlation coefficient ℓ.

25
 REFERENCES
Adebambo, B. N., & Yan, X. S. (2016). Momentum , Reversals , and Fund Manager
Overconfidence. 1999, 1–31.
Arshanapalli, B., & Nelson, W. (2016). Testing for stock price bubbles: a review of econometric
tools. The International Journal of Business and Finance Research, 10(4), 29–42.
Berk, Jonathan Green, Richard Naik, V. (1998). Optimal Investment, Growth Options, and
Security Returns. National Bureau of Economic Research, 6627.
Bernstein, P. L., Bondt, W. F. M. De, & Thaler, R. (1986). Does the Stock Market Overreact?
Blackwell Publishing for the American Finance Association Stable URL:
Http://Www.Jstor.Org/Stable/2327804, 40(3), 806. https://doi.org/10.2307/2327805
Biglova, A., & Ortobelli, S. (2004). Analysis of the Factors Influencing Momentum Profits.
School of Economics and Business Engineering University of Karlsruhe and Karlsruhe
Institute of Technology (KIT) Kollegium Am Schloss, Bau II, 20.12, R210 Postfach 6980, D-
76128, Karlsruhe, Germany E-Mail: Stoyan.Stoyanov@finanalytica.Com.
Black, F., Jensen, M., & Scholes, M. (1972). The Capital Asset Pricing Model. The Journal of
Business, 5(3), 444–455. https://doi.org/10.1201/b17178-6
Boussaidi, R., & Dridi, G. (2020). The momentum effect in the Tunisian stock market: Risk
hypothesis vs. underreaction hypothesis. Borsa Istanbul Review.
https://doi.org/10.1016/j.bir.2020.01.002
Brennan, M. J., & Modigliani, F. (1970). Taxes, Market Valuation and Corporate Financial Policy.
National Tax Journal, XXIII, 417–428.
Campbell, J., & Shiller, R. (1988). Campell-the dividend ratio model and small sample bias.pdf.
National Bureau oF Economic Research.
Chan, L. K. C., Jegadeesh, N., & Lakonishok, J. (1996). Momentum Strategies. LI(5).
Chen, N.-F., Roll, R., & Ross, S. A. (1986). Economic Forces and the Stock Market. The Journal
of Business, 59(3), 383–403. httpp://links.jstor.org/sici?sici
Chiah, M., Chai, D., Zhong, A., & Chai, D. (2015). A better model ? An empirical investigation of
the Fama- French five-factor model in Australia. Monash Business School, Monash
University, Clayton. VIC. 3180. Australia. Email: Daniel.Chai@monash.Edu, 1–33.
Condorelli, S. (2018). Price momentum and the 1719-20 bubbles : A method to compare and
interpret booms and crashes in asset markets. Center for Global Studies, Bern University,
89888. https://mpra.ub.uni-muenchen.de/89888/
Daniel, K., Titman, S., & Wei, K. C. J. (1999). Nber Working Paper Series Explaining the Cross-
Section of Stock Returns in Japan: Factors or Characteristics? The Journal of Finance,
LVI(2), 743–766. http://www.nber.org/papers/w7246
Dimson, E., & Massoud, M. (2000). Three Centuries of Asset Pricing. The Journal of Banking
and Finance, 23(12), 1745–1769.
Dirkx, P., & Peter, F. J. (2020). The Fama-French Five-Factor Model Plus Momentum : Evidence
for the German Market. 661–684. https://doi.org/10.1007/s41464-020-00105-y
Erdinc, Y. (2018). Comparison of CAPM, Three-Factor Fama-French Model and Five-Factor
Fama-French Model for the Turkish Stock. In IntechOpen: Vol. i (Issue tourism, pp. 70–91).
IntechOpen. https://doi.org/http://dx.doi.org/10.5772/57353
Fama, E. F. (1970). American Finance Association Efficient Capital Markets : A Review of
Theory and Empirical Work. The Journal of Finance, 25(2), 28–30.
htt://www.jstor.org/stable/2325486

26
Fama, E. F., & French, K. R. (2017). International tests of a five-factor asset pricing model.
Journal of Financial Economics, 123(3). https://doi.org/10.1016/j.jfineco.2016.11.004
Fama, E., & French, K. (1993). Common risk factors in the returns stocks and bonds *. Journal of
Financial Economics . North-Holland, 33, 3–56.
Fama, E., & French, K. (2018). Volatility lessons. Financial Analysts Journal, 74(3), 42–53.
Ferson, W. E., & Harvey, C. R. (1999). Economic, Financial and Fundamental Global Risk in and
Out of the Emu. Ssrn, 6, 123–184. https://doi.org/10.2139/ssrn.152889
French, R. (1989). Business Conditions and Returns on Stocks and Bonds. Journal of Financial
Economics, 25, 23–49.
Greenwood, R., Shleifer, A., & You, Y. (2019). Bubbles for Fama. Journal of Financial
Economics, 131(1), 20–43. https://doi.org/10.1016/j.jfineco.2018.09.002
Hearn, B. (2006). Pricing and Valuation in African Equity Markets. Africa, 44(0), 1–58.
Huang, Z. (2016). Are Profitability and Investment Good Proxies for Risk Factors The Analysis
on Fama and French’s Five-Factor Model. Msmi, 200–203. https://doi.org/10.2991/msmi-
16.2016.48
Ibrahim, T. M., & Agbaje, O. M. (2013). the Relationship Between Stock Return and Inflation in
Nigeria. European Scientific Journal, 9(4), 146–157.
https://doi.org/10.19044/esj.2013.v9n4p%p
Jagannathan, R., Kubota, K., & Hitoshi, T. (1997). Relationship Between Labor-Income Risk and
Average Return : Empirical Evidence From the Japanese Stock Market Federal Reserve
Bank of Minneapolis and University of Minnesota. Northwestern University Federal
Reserve Bank of Minneapolis and University of Minnesot, 1–33.
Jecheche, P. (2011). An Empirical Investigation of the Arbitrage Pricing Theory. The Journal of
Finance, 35(5), 1073–1103. https://doi.org/10.1111/j.1540-6261.1980.tb02197.x
Kamau W, C. (2014). The applicability of the capital asset pricing model and fama-french three
factor model on stocks listed in the nairobi securities exchange. University of Nairobi.
Karungu, R. M., Memba, F. S., & Muturi, W. M. (2018a). Effects of Securities Behaviour on
Performance of Nairobi Securities Exchange Indices. Research Journal of Finance and
Accounting, 9(14), 1–15.
Karungu, R. M., Memba, F. S., & Muturi, W. M. (2018b). Influence of Momentum Effect on
Stock Performance of Firms Listed in the Nairobi Securities Exchange. Research Journal of
Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.9, No.14,
2018, 9(14), 56–67.
Kothari, S., & Ball, R. (1993). Economic determinants of the relation between earnings changes
and stock returns. The Accounting Review, 68(3), 622–638.
Kruger, J., & Lantermans, S. (2010). Risk , Book to Market and Size Effects in the South African
Stock Market THE PROBLEM , SUB-PROBLEMS AND HYPOTHESES. Journal of
Financial Economics, October.
Lee, C. M. C., & Swaminathan, B. (2017). Price Momentum and Trading Volume. LV(5).
Lo, A. W., & MacKinlay, G. A. (1999). A Non-Random Walk Down Wall Street.
Malkiel, G. B., & Malkiel, B. G. (2003). The Efficient Market Hypothesis and Its Critics. Journal
of Economic Perspectives, 17(1), 59–82.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77–91.
Merton, R. C. (1990). Continuous-Time Finance.

27
Mghendi, F. (2014). Testing the Small Firm Effect on Stock Market Returns At the Nairobi
Securities Exchange. University of Nairobi.
Mumo, M. P. (2017). The Determinants of Stock Returns in the Emerging Market of Kenya  : An
Empirical Evidence. 9(9), 8–21. https://doi.org/10.5539/ijef.v9n9p8
Muthukumaran, K. (2012). Impact of Capital Structure on the Stock Price. 2(4), 391–400.
Njogo, M. N. (2017). Effect of Equity Risk Factors on the Return of Stock Portfolios of
Companies Listed at the Nairobi Securities Exchange in Kenya Between 2009 and 2014
(Vol. 8, Issue 12).
Ochere, O. G., Nasieku, T. M., & Olweny, T. o. (2018). Trading Volume and Fama-French Three
Factor Model on Excess Return. Empirical Evidence from Nairobi Security Exchange.
European Scientific Journal, ESJ, 14(22), 276.
https://doi.org/10.19044/esj.2018.v14n22p276
Otinga, N. K. (2017). Effect of price volume momentum on stock returns at the Nairobi Securities
Exchange.
Rebeca Cordeiro, da C. A., & Márcio, A. V. M. (2018). Book-to-Market Ratio, return on equity
and Brazilian Stock Returns. RAUSP Management Journal, 53(3), 324–344.
https://doi.org/10.1108/RAUSP-04-2018-001
Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory,
13, 341–360.
Ross, S. A. (1978). A Simple Approach to the Valuation of Risky Strams. The Journal of
Business, 51(3), 453–475.
Ross, S. A., & Roll, R. (1980). The Arbitrage Pricing Theory Approach to Strategic Portfolio
Planning. The Journal of Finance, 35, 1073. https://doi.org/10.1111/j.1540-
6261.1980.tb02197.x
Sid, H. U. Y., & Zhou, L. (2018). How Well Does Fama - French Five - Factor Model Fit Chinese
Stock Market ? Journal of Banking and Finance.
Solnik, B., & Longin, F. (1995). Is the correlation in international equity returns constant: 1960-
1990? Journal of International Money and Finance, 14, 3–26.
Taha, R., & Elgiziry, K. (2016). A Five-Factor Asset Pricing Model : Empirical Evidence from
Egypt. International Journal of Business, 21(4), 343.
Theriou, N., Maditinos, D., & Chatzoglou, P. D. (2003). The Cross-Section of Expected Stock
Returns : An Empirical Study in the Athens Stock Exchange. Managerial Finance, May
2014. https://doi.org/10.1108/03074350510770026
Tobin, J. (1958). Estimation of Relationships for Limited Dependent Variables. Econometrica,
26(1), 24. https://doi.org/10.2307/1907382.
Upagade, V., Shende, A., & Tarigan, P. B. (2013). Research Methodology. S.Chand and
Company PVT. LTD, 53(9), 1689–1699. https://doi.org/10.1017/CBO9781107415324.004
Wahal, S. (2017). The Profitability and Investment Premium : Pre-1963 Evidence *.
Wijaya, L. I., Irawan, R. K., & Mahadwartha, P. A. (2018). Test of Fama & French five factor-
model on Indonesian stock market. Advances in Social Science, Education and Humanities
Research (ASSEHR), Volume 186 15th International Symposium on Management (INSYMA
2018), 186(Insyma), 2013–2015.

28
 APPENDICES

Appendix 1 : Companies Listed at Nairobi Securities Exchange (NSE)

No. Company Abbreviation Category
1 B O C Kenya BOC Basic Materials
2 Carbacid Investments CARB Basic Materials
3 Crown Paints Kenya CRWN Basic Materials
4 Flame Tree Group Holdings FTGH Basic Materials
5 BAT Kenya BATK Consumer Goods
6 Eaagads EGAD Consumer Goods
7 East African Breweries EABL Consumer Goods
8 Eveready East Africa EVRD Consumer Goods
9 Kakuzi KUKZ Consumer Goods
10 Kapchorua Tea Kenya KAPC Consumer Goods
11 Kenya Orchards ORCH Consumer Goods
12 Limuru Tea LIMT Consumer Goods
13 Mumias Sugar Co MSC Consumer Goods
14 Sameer Africa SMER Consumer Goods
15 Sasini SASN Consumer Goods
16 Unga Group UNGA Consumer Goods
17 Williamson Tea Kenya WTK Consumer Goods
18 Car & General (K) CGEN Consumer Services
19 Deacons (East Africa) DCON Consumer Services
20 Express Kenya XPRS Consumer Services
21 Kenya Airways KQ Consumer Services
22 Longhorn Publishers LKL Consumer Services
23 Nairobi Business Ventures NBV Consumer Services
24 Nation Media Group NMG Consumer Services
25 Standard Group SGL Consumer Services
26 TPS Eastern Africa TPSE Consumer Services
27 Uchumi Supermarkets UCHM Consumer Services
28 WPP Scangroup SCAN Consumer Services
29 Barclays Bank of Kenya BBK Financials
30 BK Group BKG Financials
31 Britam (Kenya) BRIT Financials
32 Centum Investment CTUM Financials
33 CIC Insurance Group CIC Financials
34 Co-operative Bank of Kenya COOP Financials
35 Diamond Trust Bank Kenya DTK Financials
36 Equity Group Holdings EQTY Financials
37 HF Group HFCK Financials
38 Home Afrika HAFR Financials
39 I&M Holdings IMH Financials
40 Jubilee Holdings JUB Financials
41 KCB Group KCB Financials
42 Kenya Re-Insurance Corporation KNRE Financials

29
 No. Company Abbreviation Category
43 Kurwitu Ventures KURV Financials
44 Liberty Kenya Holdings LBTY Financials
45 Nairobi Securities Exchange NSE Financials
46 National Bank of Kenya NBK Financials
47 NIC Group NCBA Financials
48 Sanlam Kenya SLAM Financials
49 Stanbic Holdings SBIC Financials
50 Standard Chartered Bank Kenya SCBK Financials
51 Stanlib Fahari I-REIT FAHR Financials
52 ARM Cement ARM Industrials
53 Bamburi Cement BAMB Industrials
54 East African Cables CABL Industrials
55 East African Portland Cement EAPC Industrials
56 Olympia Capital Holdings OCH Industrials
57 TransCentury TCL Industrials
58 Total Kenya TOTL Oil & Gas
59 Safaricom SCOM Telecommunications
60 KenGen Company KEGN Utilities
61 Kenya Power & Lighting KPLC Utilities
62 Umeme UMME Utilities

INDEPENDENT VARIABLES
Appendix 2: Monthly stock price data for 120 months
Stock
Name 01Jan10 01Apr10 01Jul10 01 Oct10 01Jan11 01Apr11 01Jul11 ...... 01 Oct 20

TIME SERIES DATA-INDEPENDENT VARIABLES

Appendix 3: Size Data for 120 months
Stock Name 01Jan10 01Apr10 01Jul10 01 Oct10 01Jan11 01Apr11 01Jul11 …… 01 Oct 20

Appendix 4: Book value to Market Value data for 120 Months

Stock Name 01Jan10 01Apr10 01Jul10 01 Oct10 01Jan11 01Apr11 01Jul11 …… 01 Oct 20

Appendix 5: Stock Price Data for 120 Months

Stock Name 01Jan10 01Apr10 01Jul10 01 Oct10 01Jan11 01Apr11 01Jul11 …… 01 Oct 20

Appendix 6: Investment Price data for 120 Months

Stock Name 01Jan10 01Apr10 01Jul10 01 Oct10 01Jan11 01Apr11 01Jul11 …… 01 Oct 20

Appendix 7: Profitability data for 120 Months

Stock Name 01Jan10 01Apr10 01Jul10 01 Oct10 01Jan11 01Apr11 01Jul11 …… 01 Oct 20
Appendix 8: Panel A. Equal Size
Size 120 Months

30
 Small Medium Large
Size 01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10

CROSS SECTIONAL DATA-INDEPENDENT VARIABLES

Appendix 9: Panel B Size and Investment
Investment 120 Months data
Small firms/Large
Investment Low High
Size 01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10

Appendix 10: Panel C Size and Profitability

Small Firms/Large
Size 120 Months data
Stock
Name Profitable Medium Unprofitable
01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10

Appendix 11: Panel D Size and Book/Market

Small firms/Large
Size 120 Months data
Stock
Name Small Medium Large
01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10 01Jan10 01Apr10 01Jul10

Appendix 12: Monthly Portfolio Data Jan 2010 to December 2020

Dependent
Variable Independent Variable
Market
Date: Monthly S/L S/M S/H B/L B/M B/H SM/B MML RF
return

31