Stock market effects of the 2015 presidential election in Tanzania

Abstract

In this study we analyse for the first time the impact of the 2015 presidential elections on the returns of the Dar Es Salaam Stock Market. A wide range of studies have been conducted on the impact of presidential elections on stock market returns of many countries. Most of these studies have been piloted in developed nations, very little in Africa and no known study in Tanzania. This study provides new knowledge on these fronts for the finance literature in Africa, developing markets and Tanzania. The study was based on event study methodology and employed the market model to estimate the expected return, consequently leading to the computation of abnormal returns. The event days were the 12th July 2015 (nomination day) and 29th October 2015 (election day). Furthermore, a robustness of event study was conducted by testing for structural breaks to determine exogenous dates to confirm event dates assumed at the beginning of the study. A variety of GARCH models were further used to test for the effect of the presidential elections on the returns of the DSE. The graphic representation of the Dar Es Salaam stock market from the period 4th January 2010 to 30th December 2019 indicated an increase in volatility clustering over time compared to period before 2014; highly volatile markets lower investor confidence. Different patterns of abnormal returns were observed for both nomination and election period. The NP10 test indicated negative averages during the break and post break period while positive returns were observed during the pre break period. It is not unusual for this to happen during a period of structural break, but that it continues after, implies that the market is still reeling of the uncertainties generated by the Presidential election activities. The empirical findings showed that the 2015 presidential elections had an impact and sticky effect on the returns of the Dar Es Salaam Stock Market. The study recommends that investors investing on the Dar Es Salaam stock market should carefully plan and carry out investments decisions during and after the period of general elections as returns could be affected either positively or negatively during this period