Determinants of Bear Market Performance in the Nairobi Securities Exchange in Kenya

Abstract

This study sought to establish the determinants of bear market performance by taking a survey of investors in the Nairobi Securities Exchange. The specific objectives of the study were: to determine the influence of transaction cost on bear market performance; to establish the influence of mobilization of resources by retail investors on bear market performance; to evaluate the influence of financial literacy on bear market performance and also to assess the influence of cultural values on bear market performance in the Nairobi Securities Exchange. To achieve this, a cross-sectional research design was adopted and the study involved administering questionnaires to 500 retail investors participating in the Nairobi Securities Exchange through five purposively selected stock brokerage firms based in Mombasa Town. Convenient sampling technique was used to administer questionnaires to respondents and a pilot study was done to test the reliability of the data collection tool. Data was analysed by the use of descriptive statistics and correlation analysis was carried out to determine the relationship between the variables. Application of exploratory factor analysis and confirmatory factor analysis was performed to identify underlying dimensions of the study. A multiple regression model was employed to analyse the independent variables and their effect on bear market performance and ANOVA test at five percent level of significance was used to determine the relationship between the dependent and independent variables. The secondary data for firms comprising the twenty share index showed that all the firms experienced a bear market within the time range of analysis. The ANOVA results showed that three variables; transaction cost, mobilization of resources by retail investors and financial literacy values had an influence on bear market performance while the ANOVA result for cultural values was insignificant and therefore had no influence on bear market performance. The Pearson correlation analysis showed that bear market performance was strongly associated with transaction costs and weakly associated with mobilization of resources and financial literacy while the relationship between bear market performance and cultural values was largely insignificant. Multivariate regression analysis showed overally, that at p < 0.05, transaction cost positively influences bear market performance while mobilization of resources, financial literacy and cultural values negatively influences bear market performance. The study concludes that transaction cost, mobilisation of resources by retail investors and financial literacy have an influence on bear market performance, while cultural values have no influence on bear market performance. The study recommends that brokerage costs and agency costs should be maintained at low levels. The Capital Markets Authority should educate potential investors through available media such as; radio, television and online adverts on the importance of investing at the NSE. Further studies should be carried out on other variables such as contangion through global markets and its effects on share prices, firm size and level of industrial production in a country and their influence on bear market performance.