Effect of the Nullification of the 2017 Presidential Election Results in Kenya on Share Price Movements at the Nairobi Securities Exchange

Abstract

This study sought to ascertain the effect that nullification of 2017 presidential election had on share prices of companies whose shares traded on the country’s security exchange platform using an event study model design. To meet the study objective, this study adopted an event study model which lies in the need to determine among other factors some of the abnormalities in returns, with this attributed to the event under study and achieved through the adjustment of the returns that stem out from the fluctuations of stock market prices. The study was therefore based on a political variable (the nullification of the 2017 presidential results) to establish the impact of these factors on the performance of the share price indices NSE between the sample period of 2017-2018. The study collected secondary data collection from NSE. The data obtained for this study included the daily share price movement and NSE 20 share index for 20 days before and after the nullification of the 2017 presidential elections in Kenya. The collected secondary data from this study was then allocated unique numbers and captured in the latest version of the Statistical Package Software of Sciences (Version 25.0) in readiness for analysis. The study conducted descriptive analysis and trend analysis to establish the trend and changes interms of mean scores of the vriables before and after the nullification of the presidential election in 2017. Regression analysis was conducted to establish the relationship between actual returns and the market returns over the entire study period. Regression analysis was also done for the period before nullification of elections and after in order to calculate abnormal returns. The paired t-test was also applied to establish the significance of the difference of returns before and after the 2017 nullification of election results lead to a decline in actual returns, expected returns, markets returns and abnormal returns for companies listed at the Nairobi Securities Exchange. Using study results, this study concludes that NSE response to elections nullification is more negative as evident by the drop in the averages means for actual returns, market returns, expected returns and abnormal returns after the nullification of the results. It is further noted that election cycles generally affect the returns recorded on stock markets. The study recommends that countries should seek to attain political stability due to direct correlation between political instability and investors flight.