Title:
Profit Announcements, Market Efficiency and Equity Values in the Nairobi Securities Exchange Banking Index

Authors:
Ngugi Victor Kibe, Prof. Ambrose O. Jagongo (PhD), Kenya

Abstract:

This Independent Study Paper aims to analyse the effect of profit announcements on equity values to assess the level of informational efficiency within the Kenyan banking sector for the 2024 financial year. Grounded in the Efficient Market Hypothesis (EMH), the study seeks to investigate whether the Nairobi Securities Exchange (NSE) Banking Index exhibits semi-strong form efficiency by instantaneously incorporating profit information into stock prices. The Index, while formally effective from October 2025, comprises the same eleven banking stocks that traded throughout the 2024 financial year, enabling historical analysis of their price behaviour. The research will employ an event study methodology to calculate abnormal returns and analyse trading volume for the eleven banks in the Banking Index surrounding their official profit announcement dates. It will further examine investor sentiment, proxied by trading volume volatility, as a mediating variable and firm size (market capitalization) as a moderating variable in the relationship between profit announcements and equity values. The analysis intends to determine the direction and magnitude of abnormal returns, the change in trading volume, the speed of price adjustment, and the differential impact based on firm size. The anticipated findings will provide empirical evidence on the current state of market efficiency in Kenya's pivotal banking sector. This study is designed to offer significant insights for investors in formulating trading strategies, for corporate managers in planning investor communications, and for capital market regulators in evaluating market transparency and fairness.

DOI: https://doi.org/10.51505/IJEBMR.2026.10410