TECHNICAL ANOMALIES AND FIRMS’ FINANCIAL DISTRESS; EVIDENCE FROM NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

The stock market, broadly referred to as securities exchange consists of directional prices trends which
can be either upwards or downwards. In this study, Nairobi Securities Exchange, being an emerging
stock market, favoured stock price volatility anomaly as a type of technical anomaly. It considered the
utilization of trade range technique through the application of high and low prices as the
measurements of the stock price volatility anomaly. This anomaly contributed to firms experiencing
financial distress. Financial distress takes a big chunk of the share of challenges which listed firms are
exposed to in their day to day operations. The preferred measurement of financial distress is Z-Score
model. This study takes flight from the previous studies and assesses listed firms which are trading,
under suspension or delisted from the stock markets while relating technical anomalies to financial
distress which created a scholarly gap. The study embraced descriptive research design. Also it
adopted secondary data which was collected between 2007 and 2017 from a target population of 67
listed firms which had been duly licensed by the Capital Market Authority. It was determined that there
was indeed a relationship between the technical anomalies and firms’ financial distress in the Nairobi
Securities Exchange which is the study’s main objective. The recommendations will assist the
management in the implementation of business strategies while at the same time foreseeing early signs
of financial distress. They should also be keen on advising the investors on long term investment
strategy against short term one. For policy makers and regulators, they must have in place proper
measures and controls in cushioning investors against the bear market while encouraging the existence
and sustenance of the bullish market so as appeal to the investors and all other stakeholders that this
is the stock market of choice.