The School Of Business And Public Management At KCA University.
The Nairobi Securities Exchange is the key exchange market for stocks trading in the East
and Central Africa region. Having moved from floor trading to the modern electronic Trading
system, the NSE was restructured to include particular sectors with regard to economic
activities. The aim of this study was to determine how market return and market beta impacts
on portfolio returns for the firms quoted on the Nairobi Securities market. The study adopted
a three factor model to establish the relationship between the market return, market beta and
the interaction between market beta and market return for the period 2009 to 2013. The study
adopted panel regression, in order to achieve the purpose of the study. A Hausman test was
thus performed and it was concluded that a random effects model was appropriate. This study
found that portfolio return and market return were positive (r= 0.565) and significant (pvalue<
0.000) correlated and further the random effects panel regression results indicated a
positive (β=3.38) and significantly (p-value<0.05) related to Market return and Portfolio
return. Secondly, the study established that portfolio return and market beta were positive (r=
0.417) and significant correlation (p-value<0.000) and this was further indicated by the
random effects panel regression results that they had a positive (β=25.93) and significant
relationship. Similarly, the study found a negative and significant relationship between the
interaction between market beta and market return on the portfolio returns. Finally, the
estimated model was found to be significant and that 52.21 percent of the variations in
portfolio returns was jointly explained by the variations in the market beta, market return and
by the interaction between the market beta and market return. The study thus concluded that
the portfolio return is positive and significantly related to market returns. Secondly, the study concluded that the market beta was positive and significantly related and lastly, the
interaction between the market beta and market return was positive and significantly related to portfolio returns.
