Do presidential elections affect stock market returns in Nigeria?
Shehu Aliyu
MPRA Paper from University Library of Munich, Germany
Abstract:
Evidences thrive globally on the effects of political regimes, presidential elections, on stock market returns. In the same vein, this paper analyses the effects of general elections on stock returns and volatility around the election periods at the Nigerian Stock Exchange (NSE) market. The paper applies an event study approach to delineate event windows, a 5-month event window for each election was adopted comprising of an election month, and 2 months before and after each election. Returns were calculated using daily closing prices of NSE’s All Share Index (ASI) for a total of 6 elections held between 1999 and 2019. Asymmetric GARCH – EGARCH and TARCH and the Markov Switching autoregressive methodologies were applied. ASI exhibits nonlinearity and structural breaks across all the presidential elections which makes single regime model ill appropriate for modelling stock runs volatility. Evidence of an unstable and explosive conditional variance is noticeable in the 2015 presidential election market returns while leverage effect was found in the 1999 and 2007 elections, that is, bad news produces more volatility on stock returns than good news. The MS-AR (3) model neatly characterizes the NSE’s daily stock returns into bearish and bullish regime, i.e., high (low) volatility low (high) returns as regime 1 and 2, respectively. The time varying transition volatility and regime durations corroborate, in different magnitude, the regime characterization across the 6 time horizons. The paper pioneer’s an analysis of effects of elections on stock returns in Nigeria and a useful information to investors.
Keywords: Political event; stock market returns; volatility; Markov regime switching model (search for similar items in EconPapers)
JEL-codes: C13 C22 G15 P16 (search for similar items in EconPapers)
Date: 2019-05-10, Revised 2019-08-07
New Economics Papers: this item is included in nep-ore and nep-pol
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Citations: View citations in EconPapers (1)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:95466
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