The Effect of Annulment of the Presidential Election Results in Kenya on Return of Shares at Nairobi Securities Exchange

Abstract

This study sought to find out the effect of annulment of the presidential election results on the return of shares at the Nairobi Stock Exchange. The expectation was to solidify existing knowledge regarding the dominance and imperativeness of the political events on the performance of the stock exchange. The findings of this study confirmed that annulment of presidential elections does matter, further cementing conclusions of empirical studies that aspects of electioneering such as announcement of presidential results and general events affect the performance of stock markets though with varying degrees. The outcome has confirmed the need to develop and institutionalize policies that speak to management of risks with the ultimate aim of cushioning and protecting investors and other market players from un-anticipated risks. Recognition of need to stimulate robust academic research conversations that speak unequivocally to gaps in theory and practice is an urgent imperative that seemingly has been given a wide berth for far too long particular in countries where incident is more poignant. Recognizing that perfect or complete knowledge of any issue is predicated on an examination of the 360 degrees perspective, further appreciating the interactive effect, this study by illuminating into the effects of annulment of presidential elections on return of shares, has contributed to bridging the gap between theoretical and conceptual frameworks. There are both intended and unintended consequences of any action. The persuasion to re-calibrate international constructs such as trade, politics, and diplomacy, arising from the unintended consequence is neither a wandering in the dark nor an attempt to reduce otherwise serious occurrence to charades and caricatures of the political bands. While the study has demonstrated generally that events in the external environmental of the firm have material effect on the performance of shares at the Nairobi stock exchange, the finding of this study suggests that the dominance of politics in the economic outcomes as confirmed by the performance of shares at Nairobi Securities Exchange. This recognition is expected to spur further conversations about linkages and extensions of events in socio-economic impacts and outcomes. The study also has confirmed that the Nairobi Stock Exchange exhibits semi-strong form market efficiency by the way the market absorbed and reacted to the information regarding the invalidation of the presidential election result. A number of limitations to the efficacy of this study were encountered. Firstly, possibility of confounding effects associated with major events occurring close to the event date could not be ruled out, presenting an analytical conundrum. Secondly, the market model variables, though useful in predicting the market performance, could not fully account for the effects, suggesting the need for a more robust model to be employed. This problem may have been accentuated by the limitation of the tools and rigour of analysis suggesting a need for deployment other sophisticated analytical tools such as intelligent neural systems that have the ability to isolate and compute the interactive factor effects of the event. Behavioral biases by market participants could have been at play during the event timelines, and were not factored in the analytical approach. Finally the study makes suggestions for further research focusing on the need for comparative analysis in other jurisdictions where a similar event has been witnessed, broadening and deepening research objective to cover intraday activities, factor interactions including extensions to effects not limited to the formal economy but extended to informal economic aberrations so as to remedy apparent policy disconnect in the framing and execution of socio-economic policies that impact on the real economy.