Stock Market Reaction to Election Cycles: The Nigerian Experience

Abstract

This study seeks to unravel the relationship between national electoral events and industry’s stock market returns using the various presidential elections in Nigeria. The study adopts the traditional Market Model (MM) and testing with the Cumulative Abnormal Return (CAR) approach on the daily market data from the Nigerian Stock Exchange. Evidences abound that banking and Petroleum sector decreases before and increases after all elections. With the same trend for other sectors such as Conglomerates stock prices which oscillated in the same direction for the1999 and 2003; Brewery took their turn 1999 and 2011 while building sector experienced this event effect in 1999, thereby revealing industry connectivity with political activities. This manifests as their stock returns tend to reduce generally before and increase after election periods. We therefore recommend the depoliticization of public policies through strict adherence to corporate governance codes and strengthening of public institutions. This will put a check on the political manoeuvrings of the economy by boosting investors’ confidence on the market regardless of electoral activities and power swings. More importantly, for those stocks that experiences increase in value after election it is a better time to sell those portfolios and buy these stocks that experience loss in value at a post-election window.