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 itfacilitates fundraising activities, trade, investment and economic growthand development. An understanding of all the factors that affect itsperformance is crucial.Socio-political events such as terrorism have been noted to disruptthe flow of financial capital between nations and affect incomes,company profits and stock prices. Terrorism has become a fairly recentglobal phenomenon which almost every society finds itself exposed tofrom time to time, hence the need to understand its effect on the stockmarket. Terrorism is of particular interest to the government, investorsand listed companies at the Nairobi Securities Exchange (NSE).The objective of this research study was to establish the effect ofterrorism on the Nairobi Securities Exchange (NSE). This study utilized  event study methodology to examine the effect of terrorism and militaryattacks on the Kenyan stock market and relied heavily on secondarydata obtained from the NSE.The event study analysed the data using excel and Statistical Packagefor Social Sciences (SPSS) and results presented in tables, figures andappendices. The study suggests that further research studies beconducted to establish the effect of terrorism on other sectors of theeconomy such as financial institutions as well as the insurance and reinsurance sector.The study determined that there are significant short term negativestock returns around the terrorist event dates as evidenced by the declinein the NSE 20 share index, abnormal returns (AR) and the cumulativeabnormal 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 toSomalia (AMISON)