This study sought to determine the effect of terrorist activities on volatility of returns from NSE 20 share index securities. The occurrence of terrorist events, the region where a terrorist event breaks out, the size and target of the event were investigated to find out whether they influence volatility of securities that make the NSE 20 share index. Time series daily data on prices of the NSE 20 share index and the volume of traded shares were obtained from the Nairobi Securities Exchange database for the period spanning between 2001-2020. Data on days when terrorist events broke out, the size of the terrorist event, the target and region of occurrence was obtained from the Global Terrorism Database (GTD). Data on political stability of Kenya as a control variable was obtained from World Bank’s database on governance indicators. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model was used in carrying out the empirical estimation. Specifically, the Ordinary Least Squares approach was embraced in estimating the causal relationship between outbreak of terrorist events and volatility of returns from the NSE 20 share index securities. The study findings indicates that the return of securities varies yearly due to the terror shock effect. Figure 4.1 indicates that a year before the terror attack there is a high return and a year after there is a low return due to poor performance. The returns results were non-linear and dependent on some market factors that affect the day-to-day purchase of the stock. The unit root test was conducted and the ADF was negative indicated by -9.23. Since the value was larger and stronger, we accept that the terror attack affected the stock price in the year 2012 to 2014 in the Westgate mall attack. The year that the stock returns were affected at a high rate was given by the year 2013 under Mpeketoni attack where the ADF had a strong negative of 12.05. This was further explained that the sum of the ARCH and GARCH (α+β) is indicated by 1.20 which explains that the volatility rate to have an increasing return in the year 2014 in Mpeketoni attack. This shows that the terror attack affected the securities return in the years 2013 to 2015. The ADF statistics is indicated by -10.43 and -11.72 for the year 2015 and 2018 respectively this indicates that the terror attack has affected the securities return in the companies listed in NSE. It was indicated that the sum of the ARCH and GARCH (α+β) in 2019 was indicated by 0.800 which explains that the volatility rate to have an increasing return. The variation coefficient is indicated to be 0.31 this indicates that holding all the factors constant the terror shock affects the securities return with 31%. The study recommends that there should be further study to determine other effects of terror shock especially economically to determine the chain of the prices of the securities in the security market.

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