Presidential Elections and Stock Returns in Egypt

By Nezerwe, Yvan | Review of Business & Finance Studies, July 1, 2013 | Go to article overview

Presidential Elections and Stock Returns in Egypt


Nezerwe, Yvan, Review of Business & Finance Studies


ABSTRACT

This paper examines the relationship between two Presidential elections and Stock returns in Egypt. The available literature showed mixed results on the relationship between Presidential Elections and Stock Returns. The author examined daily data and used an OLS regression. Each Event Window covered 90 days around the Presidential Election. The results showed that both elections had positive impact on the stock returns in Egypt.

JEL: F30, G14, G17

KEYWORDS: Egypt, Event Studies, Presidential Elections

INTRODUCTION

This paper examines the relationship between two Presidential Elections and the Stock Returns in Egypt. The Egyptian Exchange (EGX), one of the oldest and largest stock exchanges in Africa, lists 145 member firms. It touts itself with a vision to be a world-class and premier stock market in Africa and the Middle East. The listed firms are divided into several industries (Financial Services, Chemicals, Construction, Real Estate, Telecommunication, Food/Beverage, Healthcare, Retail, Media and Utilities). From 2005 until 2010, fifteen companies had their initial public offerings on the EGX. Table 1 shows the market indicators of the EGX for the last 3 years. The Market Capitalization is the number of listed shares multiplied by the Market Price at End of Year.

The first presidential elections were held on September 7th 2005. The incumbent President Hosni Mubarak won 88% of the final votes. Several other candidates such as Ayman Noor and Fawzi Ghazi contested the elections. These elections were the first multi party elections in Egypt. Before the 2005 elections, the Egyptian voters were subjected to a referendum on the ruling party's candidate. With this referendum, President Mubarak won several presidential terms and stayed in office from 1981 until 2011.

A popular uprising removed President Mubarak from office in February 2011. During the three week "Revolution", millions of Egyptians demonstrated and asked that President Mubarak resigns as Head of State. The "Revolution" was mainly due to high unemployment, low wages, corruption and lack of free speech in Egypt. The demonstrations and strikes negatively affected the Egyptian economy. The tourism sector, an important revenue generator for Egypt, was affected as tourists feared for their safety. The civil strikes also affected the food and transportation sectors. The second President elections were held on June 17th 2012. The first Post-Mubarak elections were reportedly the first "democratic" elections and registered twelve candidates. Mohamed Morsi, candidate of the Muslim Brotherhood, won the election with 51% of the votes. The motivation of this paper is to examine the relationship between Presidential Elections and Stock Returns in Egypt. The available literature showed mixed results on the Impact of Presidential Elections on Stock Returns. This study is therefore a contribution to the literature on this topic. This study used an OLS regression and the daily data was retrieved from DataStream. The Event Windows covered 90 days around the Presidential Elections. The results showed a positive impact for both Presidential elections on stock returns in Egypt. The rest of this paper is as follows: Section 2 reviews the literature on the topics of this paper. Section 3 describes the data and methodology used in the study. Section 4 provides the results and Section 5 concludes the study.

LITERATURE REVIEW

This paper covers the topics of Egypt, Standard Event Methodology and the relationship between Presidential Elections and Stock Returns. This section reviews the different studies on these topics. Egypt is a North African country with rich history. Several books and research studies have focused on Egypt's history, religions and geology. Grimai (1992) and Trigger (1983) thoroughly reviewed the Egyptian history and society in general. The Egyptian Stock Exchange (EGX) has also received some attention on its market efficiency and its reaction to external events. …

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