Effects of Covid-19 Pandemic on Stock Returns for Commercial Banks Listed at the Nairobi Securities Exchange

Abstract

Stock returns are crucial factors that determine investment in shares. They guide portfolio investments of investors as they seek to diversify their exposure as well as ensure they maximize their returns. This study sought to determine the effect of Covid-19 Pandemic on stock returns for commercial banks listed at the NSE, where three events were identified to cover Covid-19 pandemic in Kenya. The three events included the announcement of first case of Covid-19, the lifting of lock-down in major counties, and the arrival of Covid-19 vaccine. The event study methodology was adopted by the study where secondary data was collected from NSE website as well as from CBK websites where data was collected 15 days before the event and 15 days after the event. During announcement of first case of Covid-19 pandemic, there were 10 listed commercial banks, after which BK Group Plc and I&M holdings were added into the list to make up a final list of 12 listed commercial banks. Independent t test was used by the study to determine whether the difference between the means of daily actual stock returns and the daily projected stock returns before and after each event was as a result of chance or there was statistical significance in the differences in the means. The study found that the mean of daily actual returns before announcement of Covid-19 was -0.44% with a high standard deviation of 3.00%. This indicates that despite the fact that Covid-19 was not officially announced in Kenya, the share returns for commercial banks were not doing well. After the announcement of Covid-19 pandemic, the actual share return decreased further to -0.94% with an equally high standard deviation of 3.32%. Despite the decrease in the mean of actual stock prices after announcement of Covid-19, the independent sample t test failed to reject the null hypothesis with a t test p value of 0.177 that is greater than 0.05. It indicated that the differences were only occasioned by chance and not statistically significant. However, the difference in the means of daily projected stock returns was statistically significant indicating that the projected stock returns had projected a decrease in stock returns after announcement of Covid-19 case in Kenya. The result findings could be interpreted to mean that the stock returns for commercial banks are quite inelastic to external shocks as many people may have faith in the stock returns for commercial banks despite the projections of the market models that the stock returns would be affected. This is a critical observation that is crucial in determining investments in commercial banks stocks as they are least affected by global shocks.