Investor Sentiment and Stock Market Return of Non-Financial Firms Listed on the Nairobi Securities Exchange

Abstract

Investor sentiment is associated with attitude, thought, feeling, mood, belief, judgment, or expectation of market performance. The sentiment feeling is associated with investors' cognitive comparisons in their investment as well as their experience in making an investment decision. This study examined the effect of investor sentiment on stock market return of non-financial firms listed on the Nairobi Securities Exchange. The study adopted positivism as data collection and hypothesis development and testing was achieved. The study used quantitative research design to correlate study variables using mathematical analysis methods. The correlation results indicated that investor sentiment portrayed a positive association to stock market return. Regression of coefficients of the static model results indicate that investor sentiment and stock market return of non-financial firms listed on the Nairobi securities exchange is positively and significantly related. The results implied that there exist a positive and significant relationship between investor sentiment on stock market return since their coefficient values were positive. The regression coefficients result of lagged stock market return and stock market return was positively and significantly related. The regression of coefficients results indicate that investor sentiment and stock market return is positively and significantly related. The study concluded that investor sentiment has a positive and significant effect on stock market return in non-financial firms. These results imply that when investors are more optimistic about the market generating excess returns, their extreme optimism leads to more speculative activities that tempt them to invest even more. The study also shows that sentiment is relatively correlated with stock returns significantly over time. The study recommends that by taking the investor sentiment into account as a significant determinant of stock market volatility in asset price models, investors can enhance their stock returns. The results can inform on policymakers’ efforts to stabilize stock market volatility and uncertainty in order to protect investors’ wealth and attract more investors. Keywords: Investor Sentiment, Stock Market Return & Non-Financial Firms