An Assessment of the Effect of General Elections on the Stock Market Returns in Kenya

Abstract

The main aim of the study was to establish the effect of the general elections on the return of the stock market in Kenya. This is an empirical study that analyzed the stock market returns during electioneering periods in Kenya. The study covered the period between 1997 and 2013. This period is selected because during the competitive general presidential, parliamentary and civic elections were held compared to previous general elections which did not include many political parties. The NSE index performance during this period was analyzed and the performance of the NSE index during election years compared to none election years. Descriptive research design was applied. The population of the study was the 61 listed companies at NSE. The study used secondary data, this constituted of data for the Nairobi Securities indices from 1996 to 2013 and data of each general election in the years 1997, 2002, 2007 and 2013 taken as event date: 27th December 1997, 26th December 2002, 26th December 2007 and 4th March 2013. From the research findings, it was noted that investors tend to include forward looking expectations, implying that voters incorporated speculative expectations into their assessment of macroeconomic indicators. From the analysis and the research findings, it was noted that stock market returns tend be affected by the presence of election trends. A higher level of policy uncertainty increases the risk of holding assets with returns that depend on economic policies. The study recommends that investors should carefully plan and carry out investments during and after the periods of the general elections as the returns could be affected either positively or negatively during that period. Elections can have important consequences in the stock market; therefore investors can devote a certain portion of money to invest in stocks before and another in stocks after elections. Many investors simply invest in stocks after elections where they presume that the market will be performing well as a result of the new regime.