Test for post earnings announcement drift at the Nairobi Securities Exchange

Abstract

This study was undertaken to test whether post earnings announcement drift exist at Nairobi Securities Exchange (NSE). It investigated abnormal stock returns due earning surprise after earnings announcements. The aim was to verify whether positive earnings surprise were followed by positive abnormal stock returns and equally whether negative earnings surprise was followed by negative abnormal stock returns during the event window of sixty days. The event study was conducted on thirty-eight sampled securities for companies listed and made earnings announcement over the period of three calendar years from January 2009 to December 2011. This study contributes to the body of empirical research focused on the anomalies on the NSE. An event study was conducted in which quantitative data was collected and analyzed across the sampled companies and through the event study period. The study relied entirely on secondary data available at NSE database. Descriptive statistic, regression, and T-test were used to analyze data collected on daily stock prices and earnings per share. Ms Excel and SPSS were used in aiding the analysis of abnormal returns and earnings surprise. From the data analysis results of the study revealed that firms that report good news in their earnings, they tend to have their stock returns move upwards in direction of the earnings surprise. For firms that report bad news their stock returns tend to move downwards for a period of at least 60 days from earnings announcement. This clearly shows post earnings announcement exist at NSE. Further research using better methods of earnings forecast and a longer period of study is needed to support this conclusion.