Stock market performance before and after general election - a case study of Nairobi stock exchange

Abstract

Stock markets in the world individually and collectively playa critical role in most national economies and also at the global level. They provide cash, futures, options, and other forms of derivatives which provide profitable opportunities for investors. The performance of stock market is influenced by a number of factors key among them the activities of governments and the general performance of the economy. Various studies have been carried out in America and Britain examining the performance of stock markets in these countries before and after elections. They have also examined the performance of the stock markets based on the party of the president or Prime Minister in the in power. These studies indicated that the stock market react differently based on the party of the president elected in America while there was no much difference in Britain. This study analysed the performance of Nairobi Stock Exchange before and after the last four general elections in Kenya. The study focused on the NSE performance before and after the 1992, 1997, 2002 and 2007 elections. The NSE month end indices for the period between 315t January1991 and 30th September 2008 obtained from the NSE were ana lysed using line graphs, percentages, mean, variance and other statistical measures. The study results indicate the NSE performance was influenced by the political activities and expectations around the election period in the short term. The study also reveals that the first two years after the general elections the NSE performed better than the last two years before the next general elections. The poor performance before the election could be attributed to investor anxiety and panic associated with pre-election period. The lessons from this study as well as the recommendations for the future is that investors should be cautious of the investments they undertake before the general election - whose returns could be eroded by the after-effects of the general elections. The pre-election period is thus not conducive for short-term investment. Investments undertaken in stock market in pre-election years should be geared towards realization