Study of holiday effect at the Nairobi stock exchange

Abstract

The objective of this study was to investigate whether the stock returns at the NSE exhibit holiday effect. The holiday effect portends that on a day prior to the public holidays, stocks exhibit relatively high returns than the rest of the trading days. According to Ariel (1990), on the trading day prior to holidays, stocks advance with disproportionate frequency and show high mean returns averaging nine to fourteen times the mean return for the remaining days of the year.

The study used regression analysis to find out if the stock returns around the public holidays were higher compared to the returns of other days of the week. The regression equation was modified to eliminate those holidays that do not fall on fixed dates in the year. These holidays are Idd ul Fitr and the Easter holidays. T-test was applied to assess the significance of the coefficients derived from the regression equation. None of the coefficients of the regression equation registered significance. The study shows that holidays do not have a significant impact on stock market activity at the Nairobi Stock Exchange. There is no holiday effect at the Nairobi Stock Exchange.