The effect of automation on stock market performance A case of Nairobi securities exchange

Abstract

The automation of the Nairobi Stock Exchange (NSE) in 2006 was expected as part of its objectives to improve the performance of the market. This study investigated the effect of the automation on stock market capitalization, liquidity, efficiency, returns and volatility of the Nairobi Securities Exchange (NSE). Two study periods were considered pre-automation period (January 2002 to June 2006) and post-automation period (July 2008 to December 2012). This study therefore provided information valuable to the existing and potential investors in evaluating their investment positions. The study is of use to scholars through contribution to advance knowledge and research programs in finance and financial markets. The information from the study is valuable for policy, legal framework and stock market development to government and pseudo government bodies. Additionally it provides the institutions with an external audit assessment of the performance of NSE under automation regime. The study adopted a longitudinal research design and considered data on monthly returns, prices, volumes and monthly/quarterly GDP on 37 NSE listed firms from January 2002 to December 2012. The listed firms had data spanning the study period. The study used secondary data in its analysis. Descriptive and inferential statistics were used for analysis. The first objective was analyzed using a chi-square test and paired t-test, the second objective were analysed using a chi-square test, paired t-test and Wilcoxon signed rank test. The third Objective was analysed using the Wilcoxon signed rank test and t-test. A chi-square test and t-test were used to analyse objectives four and five. The results indicated that of automation of the NSE had a significant positive effect on market size, had a significant negative effect on market liquidity, and had no significant effect on market returns, market efficiency and price volatility at the NSE.