Investor Sentiment and Firm Market Value in a Frontier Market: The Mediating Role of Stock Return Volatility

This study examines the effect of investor sentiment on firm market value and the mediating role of stock return volatility in this relationship among firms listed on the Nairobi Securities Exchange (NSE) over the period 2016 - 2025. Although empirical evidence is largely concentrated in developed markets, limited empirical research exists on the transmission mechanisms through which investor sentiment influence firm valuation in frontier African markets. Utilizing a panel dataset of 54 firms and employing fixed effects panel regression with bootstrap mediation analysis (5,000 resamples), the study finds that investor sentiment has a positive and significant effect on firm market value. This study further establishes that stock return volatility significantly mediates the relationship between investor sentiment and firm market value. The study contributes to behavioral finance literature by revealing the transmission channel through which investor sentiment affects firm value in a frontier market. Keywords: Investor sentiment, stock return volatility, firm market value, mediation analysis, Nairobi Securities Exchange, behavioral finance, frontier markets.