FACTORS INFLUENCING SHARE PRICE VOLATILITY OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Abstract

This research thesis sought to find out the factors influencing the stock prices in the Nairobi securities exchange. The independent variables were gross domestic product, inflation, dividend policy, and trading volume. A descriptive survey method was used in this study. The target population was the 61 firms that are listed at the NSE. The study used secondary data obtained from annual reports and financial statements of the firms listed in NSE found at the Capital Markets Authority (CMA) library for the period January 2010 to December 2016. A data collection form was designed to record stock prices, gross domestic product, inflation, dividend policy, and trading volume. The data collected was analyzed using the statistical package for social science (SPSS). To determine the factors influencing share price volatility of firms listed at the Nairobi securities exchange, regression and correlation analysis was carried. The study concludes that GDP, inflation rate, Dividend policy, and trading volume, influenced share price volatility. All of the variables influenced it positively. The study found out that the intercept was 1.103 for all years. The five independent variables that were studied (GDP, inflation rate, dividend policy, and trading volume) explain a substantial 80.7% of share price volatility among firms listed at the Nairobi Securities exchange as represented by adjusted R2 (0.807). The study concludes that the coefficient for GDP was 0.852, meaning that GDP positively and significantly influenced the share price volatility among firms listed at the Nairobi Securities exchange. The study also concludes that the coefficient for inflation rate was 0.654, meaning that inflation rate positively and significantly influenced the share price volatility among firms listed at the Nairobi Securities exchange. The study concludes that the coefficient of dividend policy was 0.231, meaning that dividend policy positively and significantly influenced the share price volatility among firms listed at the Nairobi Securities exchange. Finally the coefficient of trading volume was found to be 0.489, this means that trading volume positively and significantly influence the share price volatility among firms listed at the Nairobi Securities exchange.