Effect of General Elections Results Announcement on Stock Returns for Firms Listed at the Nairobi Securities Exchange

Abstract

Election is an essential political action that establishes the course of outlook financial organization. Variances in procedures that are established by voting results, can affect not only customers wellbeing but as well company returns. In addition, political actions particularly voting in rising states augment the intensity of indecision in the security markets. The study sought to establish the impact of general elections results announcement on stock returns for firms listed at the NSE. To achieve the study objective, a descriptive study design was employed and population comprised of the 65 firms quoted with the NSE as at 31st December 2017. The research adopted secondary sources of data, which was retrieved for a period of 40 days before the August 8th elections and October 26th 2017 elections results announcement and also for a period of 15 days after the August 8th elections and October 26th 2017. To analyze the collected data, an event study methodology was used and to test the statistical significance before and after the elections for the abnormal market returns, average adjusted market returns and the Cumulative average adjusted returns, the study used the paired sampled test. The paired sample statistics for the announcement of August 8th 2017 elections results revealed that there was no statistically significant difference in the NSE 20 share index abnormal returns (AR) and average abnormal returns (AAR) before and after the announcement of August 8th 2017 election results. The results also found that there was a statistically significant difference in the NSE 20 share index CAAR before and after August 8th 2017 elections announcement. In addition, the results reveled that that there was no statistically significant differences on abnormal returns (AR) and cumulative average abnormal returns (CAAR) before and after the announcement of August 8th 2017 election results and that there was a statistically significant difference for the average abnormal returns (AAR) before and after the announcement of August 8th 2017 election results. The paired sample statistics for the announcement of October 26th 2017 elections results established that there was no statistically significant difference in the NSE 20 share index abnormal returns (AR) before and after the announcement of the election results. The results further revealed that there was a statistically significant difference in the NSE 20 share index average abnormal return (AAR) and cumulative abnormal return (CAAR) before and after October 26th 2017 elections announcement. The results further established that there was no statistically significant difference in the NASI abnormal returns (AR) before and after the announcement the election results and there was a statistically significant difference in the NASI average abnormal return (AAR) and NASI cumulative abnormal return (CAAR) before and after October 26th 2017 elections announcement. The study therefore recommends that investors should invest in a combination of assets so that they can mitigate risk associated with elections and suggested that a similar study can be carried out on individual firms which are use to generate the NSE 20 share index and the NSE 25 share index.