Informational content of general election results announcement at the Nairobi securities exchange

Abstract

Elections not earnings are now driving financial markets around the world. Price Earnings ratios determine the performance of many stock exchanges and a major source of all that stomach-churning stock-market volatility where the abnormal returns are blamed on elections results announcement. To determine the effects of general results on stock market performance using a case of the Nairobi Securities Exchange. The study adopted event study methodology. The event that affects a firm's market value may be within the firm's control, such as the event of the announcement of a stock split. The target population for this study included: companies trading at the Nairobi Security Exchange as at December 31st 2007 that compute the NSE 20 share Index. Because of the small number of firms and the fact that the study will use secondary data, the study conducted a census hence there was no sampling. Data was obtained from the NSE covering the period between 31st December 1997 and 31st December 2007. The study collected data on NSE 20 share index and market capitalization for NSE for the two general elections results announcement. These dates included 29th December, 2002 and 30th December 2007. The study computed the changes recorded in share prices as measured by the market capitalization and NSE 20 Share index. The study concludes that there is a strong relationship between general election results announcement on stock market performance of the Nairobi Securities Exchange. The announcement of general election results brings with it the hope and stability that otherwise the investors were worried of. As a result, the announcement of general election results brings about the stability in the market and allows the forces of demand and supply to drive the operations of the market. The Government of Kenya needs to create complete independence of the Nairobi Securities Exchange so that operations of the securities exchange are not affected because of its key position in the economy especially in the form of raising long term capital.