How do markets react to political elections during periods of insecurity and governance crises? Evidence from an African emerging democracy

Purpose: This paper operationalizes insecurity and governance crises to study their effects on stock market response to two political events in Nigeria – the 2015 and 2019 presidential elections. Design/methodology/approach: An event study was used to capture the market responses. Abnormal returns at the aggregate and sectoral levels were measured over several time windows before and after the respective election results were announced. Findings: The market reacted strongly positively to a change in presidency from an incumbent to an opposition party candidate in the 2015 election but weakly positively, at best, to the re-election of the incumbent candidate in the 2019 election. In addition, banking stocks exhibited greater sensitivity to these events than oil and gas stocks. Research limitations/implications: There may be peculiarities with the Nigerian case and with the two elections analyzed. Therefore, future research could focus on understanding the extent to which the results generalize to the broader sub-Saharan context and other regions that face similar governance challenges. Practical implications: Understanding that markets may have a different perception towards incumbent versus opposition candidate electoral victories during periods of insecurity and governance crisis is important for investors, policymakers, researchers and the wider society. Originality/value: Past empirical studies on political events and stock returns in Sub-Saharan Africa contexts such as Nigeria ignore shifts in voter mood and produce contradictory findings. This paper helps to resolve some of these contradictions by providing insight into how the markets can have a different perception towards incumbent and opposition candidate electoral victories during periods of insecurity and governance crisis.