Effect of Political Events on Stock Market Returns at the Nairobi Securities Exchange

Abstract

The price of a security adapts quickly to information that comes in to the market. However, in behavioral finance, such kind of efficient market cannot adequately establish any exploratory anomalies. The focus of the research was to establish the consequences of political events on stock market returns at the Nairobi Securities Exchange. The study’s target population involved the companies listed at the NSE from 2017 up to the last political event. All the listed companies within that period were covered. Census was the appropriate technique to use in the study considering that the population was small. The sample was the 65 listed firms at the NSE. Event study methodology was used in the study. The events under interest are all within this timeframe as follows; 8th August 2017 Elections, 1st September 2017 nullification, 26th October 2017 repeat election, 30th January 2018 mock swearing in and 9th March 2018 handshake. These events were linked to the general elections in Kenya and were used to represent political events in line with the study. According to the t-test statistics for the CAR, the August Elections, repeat elections, mock swearing in and handshake events were found to be insignificant while Elections nullification were found to be significant at 95% level of confidence. This shows that the stock returns for the event on election nullification deviated from their means significantly while those for the August Elections, repeat elections, mock swearing in and handshake events were insignificant. These findings suggest that investors at the Nairobi stock exchange perceived the August Elections, repeat elections, mock swearing in and handshake events as insignificant and hence recovered and steadied instantaneously, hence the insignificance of CAR.