Abstract:
Stock markets that are efficient generate prices in a random manner which causes high
stock price movement or volatility. Low stock price movement implies consistent stock
performance and the existence of anomalies in stock markets that are efficient. There are various types of consistent stock performance but the specific type that relates to low stock price movement in the NSE and the relevant underlying variables are unknown and hence the justification of the current research. The purposive sampling method was employed to select a sample of 31 stocks from a population of 56 stocks that were listed in the NSE during the study period from January 2001 to December 2010. The sample stocks were initially sorted into three portfolios consisting of high, medium and low price volatility stocks based on the standard deviation historical volatility metric. The portfolio with low stock price volatility was then compared with the different types of consistent stock performance in order to establish the specific type that was significantly associated with historical stock price volatility. The low stock price volatility portfolio was regressed against underlying firm characteristics to establish their prediction power. The results indicated that consistent positive stock returns type was significantly associated with low stock price volatility with Pearson’s correlation coefficient being 63.9% and p-value being 0.047 at 95% level of significance. Book value, dividends per share and earnings per share predictor variables had significant prediction power over low stock price volatility and consistent stock performance. The implication of these results is that investors in the NSE can predict consistent stock positive stock returns and low stock price volatility by studying underlying firm characteristics of book value, dividends per share and earnings per share.
