Abstract
Nairobi Securities Exchange 20 Index Share (NSE-20 Share Index/ An Exchange Traded Fund) has been one of the investment avenues for both Kenyans and foreign investors look whenever they want to make sound investments decisions in the market. However, the assumption that the daily securities index prices follows a normal distribution has been disputed by data in several cases. This means new statistical distributions must be used to discern the distribution of NSE-20 Share Index thus enabling investors make prudent financial decisions to avoid financial loses. In this research paper, we will model the prices of daily securities index using a log-normal distribution. This is because the distribution follows a positive trend before we can ascertain on how well it fits the already available data at the NSE market. This research paper recommends that a log-normal distribution best fits data of the daily prices of NSE-20 Share Index for those investors who would like to model the future of the market before making financial decisions. Keywords: Daily Returns, Volatility, Healthy-Tailed Distribution, NSE-20 Share Index, Log-normal Distribution DOI: 10.7176/RJFA/11-8-08 Publication date: April 30 th 2020
Highlights
A securities market index such as NSE-20 Share Index is a measure sensitively of the respective cumulative securities prices of the index to the market performance
NSE All Share Index (NASI) is an important index that shows the overall performance of the market for the investors interested in all sectors of the Kenyan economy as opposed to NSE-20 share Index
We intend to model the daily prices of NSE-20 share Index using a log normal distribution to www.iiste.org take into considerations the heavy tailed that is likely to experience in the market after crushes due to pandemic like Covid-19 virus experienced in the market today in Kenya
Summary
A securities market index such as NSE-20 Share Index is a measure sensitively of the respective cumulative securities prices of the index to the market performance. Securities prices are often assumed to follow a normal distribution, this might not be cases when modeling the prices movements. This means both weekly as well as monthly price changes might not have a normal or a Gaussian distribution when trading in the market.
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