The holiday effect and stock market volatility: Evidence from Nairobi securities exchange
Abstract
The main objective of this study was to determine whether there is a relationship between
holiday effect and the stock return volatility at the Nairobi Securities Exchange. This study
examined pre-holiday, post-holiday and normal day’s returns and how they affect volatility of
returns at the NSE. This study adopted a descriptive research design. The data used in this study
constituted daily stock returns of 50 companies listed continuously at NSE from 1st Jan 2011 to
31st December 2013. Secondary data was obtained from the records at the NSE for the three
year period from 2011 to 2013. The data included daily prices and market indexes from the
Nairobi Securities Exchange. The daily return for each firm was obtained. The daily returns
being the dependent variable and market index being independent variable. A regression model
was adopted to determine holiday effect on stock market volatility using the volume weighted
average price. The finding indicated existence of holiday effect at the Nairobi Securities
Exchange and that the holiday effect is accompanied by stock return volatility with highest
volatility experienced during post holiday returns and lowest volatility is experienced on pre
holiday returns. In conclusion, consistent with the existing findings, Holiday Effect exhibited at
the Nairobi Securities Exchange is accompanied by stock return volatility with high return
volatility experienced on post holiday returns. The presence of holiday effect and stock return
volatility indicate stock market inefficiency and therefore, NSE as a regulator of Kenya’s
Securities market need to take steps in order to increase the informational efficiency of the stock
market operation.