The effect of general elections on stock returns at the Nairobi securities exchange

Abstract

The performance of the financial markets is significantly impacted by \nthe political environment during eneral ellections. This paper focussed on the \neffect of general ellections on the stock retuns at the Nairobi Securities \nexchange. Emperical results have given inconsistent results on whether \ngeneral election events negatively of positively impact the stock return. The \nstudy adopted event study methodology and analysed secondary data \ncollected from the NSE around the 1997, 2002, 2007 and 2013 general \nelection dates in Kenya. The study found that market reaction to elections is \nhighly negative or positive depending on the volatility of the election \nenvironment. Analysis of the cumulative abnormal returns (CAR) found that \nthe 2002 and 2013 general elections were insignificant, while the CAR \naround the 1997 and 2007 general election events were found to be \nsignificant at 5% level of significance. The study, thus recommends that \nstock market, investors and other stakeholders not to overlook electioneering \nevents, and to implement policies that will cusion the security market against \npolitical risks during general elections to enhance investor confidence.

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