Effect of Price Earnings Ratio on Share Price Volatility of Firms Listed on Nairobi Securities Exchange

Abstract

The objective of the study was to determine the effect of price earnings ratio on share price volatility of firms listed on the Nairobi Securities Exchange in Kenya. The target population in this study comprised all the firms listed on the Nairobi Securities Exchange. The study sampled firms that had been continuously paying dividends for the study period. This period was important in the sense that it conformed to the coming of devolution which marked a change in the governance structure of Kenya and also presented alternative investment opportunities in the counties. A correlation research design was adopted where secondary data was collected using data collection sheets and analysed using inferential statistics of correlation and regression model. The descriptive statistics analysis entailed Minimum, Maximum, Mean and standard deviation. The findings showed price earnings ratio to be a significant cause for share price volatility of firms listed at the Nairobi Securities Exchange. The study precisely pointed out a significant positive effect of dividend per share and price earnings ratio on share price volatility of firms listed on NSE. The study recommended a robust rationing of earnings between retention and dividend payment.