The Impact of Covid-19 Announcements on Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

Stock prices and other market values can be affected significantly by announcements, whether positive or negative, especially if the news is unexpected. The COVID-19 pandemic is a rare occurrence; no other incident of comparable magnitude and severity in recent past has occurred. The study's objective was to see how COVID-19 announcements affected NSE-listed firms' stock returns. The independent variables were the announcements on March 12, 2020, March 15, 2020, and April 6, 2020, which corresponded to the announcement of the first positive COVID-19 case and the start of each stage of COVID-19 preventative efforts in Kenya. The stock market returns were the dependent variable in this study. There was no sampling, and the research was based on secondary data. All firms listed at the NSE as at December 31st, 2019 were included in the target population. Daily closing stock prices for all firms listed and the daily closing prices of the NSE All-Share Index (NASI) were analyzed for the period October 15, 2019 to April 15, 2020. Using the event study methodology, the average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) were determined using the Market Model and the significance of abnormal return values was tested using statistical theory (t-test). Microsoft Excel spreadsheets were used for the analysis. Based on the research findings, all the three events under study had an impact on stock returns of firms listed at the NSE, but the level of influence varied in every event. The research concluded that there was a significant market reaction to the announcements thus supporting the Efficient Market Hypothesis that asserts that when new information appears in the financial markets, prices are updated immediately. The study recommended that investors could use COVID-19 pandemic information to forecast stock values, and such information should be considered while managing their portfolio in the event of future crises. Also, businesses should press regulators to develop clear policies aimed at reducing economic uncertainty, persuading them that a gradual lifting of the closures will allow businesses to recover. Finally, it was recommended that it is critical for the government and government regulatory authorities to take effective and prompt steps to assist enterprises severely impacted by the COVID-19 pandemic in resolving issues and restarting production and operations.