An Empirical Study of the Effect of Corruption Scandals on the Volatility of Stock Returns on the Nairobi Securities Exchange

40 Pages Posted: 23 Apr 2021

Date Written: November 30, 2018

Abstract

Corruption is a vice that affects most if not all societies. With the ever increasing complexities of financial markets, corruption could potentially have severely adverse effects on the markets. This study examined the effect of announcement of corruption scandals on stock return volatility on the Nairobi Securities Exchange. The corruption scandals chosen were; the Eurobond Scandal, Charterhouse Bank Scandal, SafaricomGate scandal, National Youth Service scandal and AngloLeasing Scandal. It was hypothesised that announcements of corruption scandals would lead to an increase in stock return volatility. The approach used was that of a multivariate GARCH, incorporating dummy variables representing the announcement of the corruption scandals, to estimate the effect of the corruption scandals on stock return volatility and the time period was from January 2000 to December 2017. Monthly data was used and the N.S.E. 20 share index was used as a proxy for the market. This study concluded that unveiling of corruption scandals leads to a decrease in stock return volatility.

Keywords: Corruption, Stock Market, Return Volatility

JEL Classification: G19

Suggested Citation

Mngolia, Ian, An Empirical Study of the Effect of Corruption Scandals on the Volatility of Stock Returns on the Nairobi Securities Exchange (November 30, 2018). Available at SSRN: https://ssrn.com/abstract=3831251 or http://dx.doi.org/10.2139/ssrn.3831251

Ian Mngolia (Contact Author)

Strathmore University ( email )

Kenya
Nairobi
Nairobi
Kenya

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