Effect of Investment Risk on Unit Trust Price Volatility Among Capital Market Authority Listed Firms in Kenya

Abstract

The purpose of the study was to investigate the effect of investment risk on unit trust price volatility among CMA listed firms in Kenya. As a result of unit trust price volatility, investors are shifting to real estate and other investments with low price volatility. This makes unit trust price volatility an important issue to investigate. The unit trust price volatility is of much importance to investors, fund's managers and government regulators. The objective that guided the study was to investigate the effect of investment risk on unit trust price volatility. A record survey sheet was used to collect secondary data using longitudinal research design. The statistical population of the study consisted of 19 Unit trusts registered by CMA 2016 and offering equity fund. Census was taken to collect annual data for a period of 9 years from 2009 to 2017. Data presentation was done using panel plots, trend lines and distribution tables. The statistical techniques used are descriptive statistics such as Mean, median and Standard deviation. Diagnostics tests done were multicollinearity, autocorrelation, normality, Heteroskedasticity, Hausman and serial correlation. Correlation tests, analysis of variance and panel regression analysis were also done for Inferential statistics. The hypothesis of the study was tested using panel regression analysis. The null hypothesis of the study was rejected at 5% level of significance. The results (r= -O.4366) of the study indicated that the effect of Investment risk on unit trust price volatility was negative and statistically significant at 5% levels. The overall model was tested using the F-test at 5% level of significance which resulted to the value of F (0.05,1,84) = 3.96 ≤ F (1, 83) = 19.550, p-value =0.000≤ 0.05 indicating that the model fits well. The results of the study analysis revealed that investment risk had a statistical significant effect on unit trust price volatility among CMA listed firms in Kenya for equity fund model. The coefficient of determination (R 2 ) = 0.1906 which indicated that the investment risk contributes only 19.00% of the unit trust price volatility while the larger proportion is attributed to other extraneous variables. The model can be used for unit trust price volatility prediction though on a low scale. The study made the following recommendations; CMA regulate and inspect the financial stability policies governing unit trusts, unit trust firms to pay the investors in time and improve on financial stability, reduce on the operation costs and control operation systems of unit trusts. On policy implication, the government should review the CMA act to give the authority the inspection mandate on the unit trust to make them efficient and conform to financial international standards to be in line with the economic pillar of vision 2030.