The Effect of Terrorism on Kenya’s Securities Market: The Case of The Nairobi Securities Exchange

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). 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 reinsurance 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.

Key words: Terrorism, Securities Market, African Union Mission to
Somalia (AMISON)