Testing the Pre-holiday Effect on Stock Returns at the Nairobi Securities Exchange

Abstract

The main objective of the study was to test the pre- holiday effect on stock market returns at the Nairobi Securities Exchange. The stock market returns were computed for five days before the holidays and five days after the holidays. The results were further analyzed by calculating expected returns and subsequently computing the abnormal returns. This study adopted a descriptive research design. The data used in this studyconstituted daily stock returns of companies listed continuously at NSE from 1st January 2010 to31st December 2013. Secondary data was obtained from the records at the NSE for the fouryear period from 2010 to 2013. The data included daily prices and market indexes from theNairobi Securities Exchange. The daily return for each firm was obtained. An event study methodology was adopted to test the pre- holiday effect on stock market returns at the Nairobi Securities Exchange. The finding indicated existence of pre-holiday effect at the Nairobi SecuritiesExchange. In conclusion, consistent with the existing findings, pre- holiday effect exhibited atthe Nairobi Securities Exchange is accompanied by fluctuations in stock return. The presence of pre- holiday effect on stock return indicate stock market inefficiency and therefore, NSE as a regulator of Kenya’sSecurities market need to take steps in order to increase the informational efficiency of the stockmarket operation. This will enable investors to reap fully benefits of investing at NSE.