Effect of Elections on Stock Market Returns at the Nairobi Securities Exchange
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Date
2013-10Author
Menge, Robert N
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Country’s politics can exert significant influence on its income distribution and
prosperity hence affect the activities in a stock market as voters in democratic states elect
parties which best represent their personal beliefs and interests. Election results may
affect post-election corporate performance either by influencing a country’s overall
economy, like through changes in government spending either through fiscal changes, or
company or sector-specific decisions such as changes in the regulatory environment after
the new administration has been established. This study sought to examine the effects of
the general elections on the stock market return of companies listed in the Nairobi
Securities Exchange. The study adopted an event study methodology since the study was
concerned with the establishment of the information content of election results
announcement on share performance at the NSE. The population of this study was 56
companies listed in the NSE. The study used secondary data to gather information. Data
obtained from the NSE covered the period before and after 31st December 2002, 27th
December 2007 and 4th March, 2013 elections. The collected secondary data was coded
and entered into Statistical Package for Social Sciences (SPSS, Version 20) for analysis.
Study findings from the market model indicated that the market return is a good predictor
of stock returns. ANOVA results indicated that abnormal returns before elections were
significantly higher than abnormal returns after the elections. ANOVA results also
indicated that actual stock returns were significantly higher before elections than after
election periods. Finally, ANOVA results revealed that the expected returns as well as
the market returns were significantly higher before elections than after the elections. It is
recommended that investors should factor in elections effect when making investment
decisions. Specifically, investors should buy stocks after elections and sell them when
their returns are high, that is, before elections. It is recommended that the Government
should maintain stability after elections as instability brings about drops in stock returns.
Citation
Degree Of Master of Business Administration (MBA)Publisher
University of Nairobi School of Business
Description
A research project submitted in partial fulfillment for
the award of Degree In Master Of Business Administration,
University Of Nairobi