The Holiday Effect on Stock Returns at the Nairobi Securities Exchange

Abstract

The objective of the study was to test for the existence of the holiday effect on stock returns at the Nairobi Securities Exchange. Daily stock market returns were computed for five days before the holidays and five days after the holidays. The results were further analyzed by computing the annual return, and cumulative annualized preholiday and post holiday returns and subsequently computing the abnormal returns. Secondary data used in this study constituted daily NASI indices obtained from the NSE for the period 1st March 2008 to 31st August 2016. This study adopted a descriptive research design and used the Wilcoxon signed rank test procedure to compute the annualized cumulative returns for holidays at the NSE. Data analysis was done using the statistical package R. Stock return fluctuations occur in all the preholiday and post-holiday periods. Preholiday and post-holiday periods around Christmas and New Year holidays record the highest mean annualized returns. The results of the joint Wilcoxon signed rank test for all holidays show that preholiday abnormal returns have a P –value of 0.0126 while postholiday returns have a P-value of 0.0008 leading to the rejection of the null hypothesis. These results indicate that while trading at the NSE, trading in shares five days before and five days after a holiday consistently over a period of time can enable an investor to make higher profits. The study therefore implies that the NSE is an efficient market in the weak form and therefore CMA as a regulator should put in measures to ensure that there is increased market efficiency at the NSE.