Holiday Effect On Stock Market Return At The Nairobi Securities Exchange, Kenya

Abstract

In an efficient market, securities prices fully indicates all the available information at any time and therefore investors cannot beat the market using past stock price behavior to predict future prices. Those who oppose this hypothesis have argued that security market anomalies do exist in the market. The objective of this study was to investigate the existence of the holiday effect at the Nairobi Securities Exchange (NSE). The study modeled as an event study focuses on abnormal returns and cumulative abnormal returns at the NSE over seven public holidays namely: New year, Easter, Labour day, Madaraka day, Mashujaa day, Jamhuri day and Christmas holiday using companies listed at the NSE over a five year period. Stock market returns as measured by NASI was the dependent variable. The event was the specific holiday in this case and the event day represents the day of the holiday and was symbolized as t=0. The event window was 11 days broken as 5 days before the event date and 5 days after the event date i.e (+5, -5) days. The estimation period for the study was 5 days ahead of the occasion window as well as 5 days post-event period to avoid overlapping of data. Normal returns, abnormal returns and cumulative abnormal returns were computed while non-parametric tests were used to establish significance of the returns. The study finds that most stock returns generated at the NSE after the holiday are positive when compared with the negative post-holiday returns. Non parametric tests show that positive post-holiday returns proportion are more than the negative post-holiday returns which confirms existence of the post-holiday effect. T-tests conducted on the returns confirm that none of the holidays has greater effects than the other. Further, T-tests on pre-holiday and post-holiday abnormal returns establish that there are no significant disparities amongst the pre and the post-holiday abnormal returns. The study recommends that the market microstructure should be aligned to enhance market price discovery and market efficiency. At the same time, further investigations should be modeled on other corporate events and national or international events that influence security returns in financial markets.