Proceedings of The 2nd International Conference on Advanced Research in Management, Economics and Accounting
Stock Selection in Emerging Stock Markets: Evidence from the East African Securities Exchange Markets
Oliver Kasele Bakuka
From CAPM and Fama and French (1992, 1995) approach selecting stocks and construct portfolios that yield to outperform the benchmark in emerging markets, we use a sample of forty-one firms Nairobi Stock Exchange (NSE), twenty firms from Dar-Es-Salam Stock Exchange (DSE) and nine firms from Uganda Securities Exchange (USE), stretching from 2011 to 2019 period. The stocks were sorted annually by size and book-to-market values into six portfolios that enable regressions on the CAPM model, Fama and French Three factor international and country-specific model, and world factors model. The objective is to determine whether it is possible to beat the benchmark from anomalies and to extend the domestic Fama and French model to international and world risk factors models. The results indicate that the Fama and French Three-factor model performs better than CAPM; some selected portfolios from Fama and French outperform the benchmark. Foreign risk factors due to cross-listing express little explanatory power from the original model, integration of market is far to be effective in the East African Securities market.
keywords: Stock selection, Factor Performance, Abnormal return.