The Effect of Announcement of Presidential Results on the Foreign Exchange Rates in Kenya

Abstract

Kenya’s election cycle and the Shilling exchange rate are leading soci-economic variables which drive the evolution of the Kenyan economy. Fluctuations in the exchange rates deeply affect the country’s competitiveness in international trade and other economic activities in various sectors. An important item to look at, thus, is the link between these variables: Is there causality between them? are there empirical evidences on the statistical link between them? Consequently, this paper empirically examines the effect of announcement of presidential results on foreign exchange rates in Kenya with a daily time series data of 3 currencies. The main results and conclusions are based on the Event Study methodology. The market model utilized interbank rate to calculate the Abnormal Returns and the Cumulative Abnormal Returns. A test of significance was carried out using a two-tailed student t-test at 5% level of significance. From the collected data it was observed that the announcement of presidential results had a statistically significant effect on the exchange rates under study. The regional currency USH however, did not show such a significant relationship. The study recommends that a similar study can be done on the effect of the announcement of presidential elections for other key forex rates not dealt with in this study. A similar study can also be done on the effect of the announcement of the results of the fresh elections held after nullification of the August 7, 2017 presidential elections. It is advisable that policy makers should come up with ways of mitigating the fluctuation of the exchange rates during and after electioneering periods.