The Effect of Muslim Holidays on Stock Returns of Listed Companies at the Nairobi Securities Exchange

Abstract

Traditional finance theory postulates that investors are rational, in the sense that they correctly update their beliefs when new information is available. These assumptions of rationality, and their corresponding implications for market efficiency, have come under attack recently from a number of quarters. Psychologists and experimental economists have documented a number of departures from market rationality in the form of specific behavioral biases that are apparently ubiquitous to human decision making under uncertainty. One of the human characteristic and features is its beliefs. Feature which has important effect on lifestyle, culture, society and decisions making - even economic decisions. This study intended to investigate the effect of Muslim holidays on stock returns at the NSE. The Islamic holidays are religious practices whose aim, like all other fundamentals of Islam, is to imbibe piety and self-righteousness. It also promotes the spirit of sacrifice for a right cause. During these holidaysthe observances affect investors‘ reasoning and emotional state. This thus affects their decision making under uncertainty. Event study methodology was employed in this study and data for two years, 2013 and 2014, of the of the NSE 20 share index movements in prices collected. This data was analyzed using spreadsheets like excel and fed into SPSS (Statistical packages for social sciences) for further analysis. The results show that six out of the ten holidays studied during the two years had an effect on stock returns. Thus Muslim holidays affect stock returns of companies listed at the NSE. This implies that the stock market is influenced by investor sentiments and moods hence investors are not rational and so a stock market anomaly exists at the NSE.