THE ROLE OF INVESTOR SENTIMENT ON PRICING EFFECT OF PROFITABILITY RISK FACTOR IN KENYA

Emerging stock markets are characterized by strong investor sentiment and rapid fluctuations in returns. However, the role of on asset pricing has not been explored these markets. This study sought to establish if effect profitability risk factor returns would vary with level at Kenyan equity market. A quantitative causal time-series design was adopted analyze cause-effect relationship among variables. The utilized monthly return data 60 firms listed Nairobi Securities Exchange (NSE) from 2011 2019. Test portfolios were constructed following Fama-French five-factor model framework. Auto-Regressive Distributed Lag (ARDL) Vector Error Correction (VEC) estimation techniques show that is a significant predictor 5% level. Overall, though consistent valuation theory, coefficient negative, implying high exposure results low Further, adding variables main effects enhance significance NSE. evidence presented contributes establishing investment strategies, estimating required rate assessing portfolio performance collective investments.