The Effect of Earnings Announcement on Stock Market Return at the Nairobi Securities Exchange

Abstract

Markets with prices of stock that mirror the entire information which is publicly available, are called efficient markets. This means that investors will not gain abnormal returns from the market. This further implies that announcements of earnings will not affect stock returns in an efficient market. There are varied results on the studies done on stock returns and earnings announcement at the NSE. This study’s main objective is examine the effects of earnings announcement on stock market returns of listed companies at the NSE. The study employed the event study methodology. A 14 day event window was used, 7 days before the announcement, 7 days after the announcement and the event day being day 0. Out of a population of 61 companies quoted at the NSE a sample of 10 companies were selected that have actively trading stocks. The study period was for the financial year 2014. Data was collected from the stock exchange listing services. Abnormal returns were first determined by using the market model whereby daily stock returns was regressed with the corresponding market return on the estimation period then deducting expected returns from the daily returns. The AR and the CAR were computed and graphs plotted for each company. Data was analyzed using MS Excel. The empirical results showed varied results with the overall results suggesting that stock returns were affected by earnings announcement.