| dc.description.abstract | The stock market plays a critical role in the national economy since it facilitates
fundraising activities, trade, investment and economic growth and development. An
understanding of all the factors that affect its performance is crucial.
Socio-political events such as terrorism have been noted to disrupt the flow of financial
capital between nations and affect incomes, company profits and stock prices. Terrorism
has become a fairly recent global phenomenon which almost every society finds itself
exposed to from time to time, hence the need to understand its effect on the stock market.
Terrorism is of particular interest to the government, investors and listed companies at the
Nairobi Securities Exchange (NSE).
The objective of this research study was to establish the effect of terrorism on the Nairobi
Securities Exchange (NSE). The three main terrorist events studied were the 1998
bombing of the US embassy in Nairobi, the 2002 bombing of Paradise hotel in
Kikambala and the 2011 kidnapping of tourists and aid workers. This study utilized event
study methodology to examine the effect of terrorism and military attacks on the Kenyan
stock market and relied heavily on secondary data obtained from the NSE.
The event study analysed the data using excel and Statistical Package for Social Sciences
(SPSS) and results presented in tables, figures and appendices. The study suggests that
further research studies be conducted to establish the effect of terrorism on other sectors
of the economy such as financial institutions as well as the insurance and re-insurance
sector.
The study determined that there are significant short term negative stock returns around
the terrorist event dates as evidenced by the decline in the NSE 20 share index, abnormal
returns (AR) and the cumulative abnormal returns (CAR) around the terrorist event dates.
Therefore, terrorism has a negative effect on Kenya’s stock market | en |
