An investigation of the existence of a random walk model for the Nairobi stock market prices

Abstract

The behaviour of the Nairobi stock market prices is examined, under the assumption that the series follow a Random Walk Model.

An examination of the spectra of the first differences of the five series shows the existence of significant cycles in the low as well as in the high frequency ranges. In addition, important annual components and/or their harmonics do exist in some series.

It is concluded that the Random Walk Model is not appropriate for the Nairobi stock market prices. It is further concluded that there is, therefore, no universal behaviour of stock market prices and that in some markets, such as the Nairobi market, prices may be predicted enabling speculators to make profit.