How Terrorism and Macroeconomic Factors Impact on Returns: A Case Study of Karachi Stock Exchange (original) (raw)
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Despite limitation of 'War on Terror' in specific Asian countries, global economies are facing serious threats in their capital markets. As a front line state in War on Terror, Pakistan is facing economic instability and disquieting consequences. Recent emergence of religious, sectarian and politically induced terrorist factions has attracted dramatic focus of media, serious damages to public and private assets and unavoidably affected global equity markets. Due to central location of affected areas, equity markets of Pakistan are highly pretentious by consequences of War on Terror. This study examines the relationship between Terrorism and Macroeconomic factors (Interest Rate and Inflation) on Karachi Stock Exchange (KSE-100 Index) using daily basis data for Terrorism and monthly basis data for Macro-economic Factors from 1st July 2005 to 31st June 2010. Various statistical techniques are used include unit root Augmented Dickey Fuller test, Phillip Perron, Johansen's co-integration, Granger's causality test, ARCH, GARCH and GARCH-EVT. Findings of the study revealed co-integration between macroeconomic factors and KSE stock returns which demonstrate that largest equity market of Pakistan KSE-100 Index have negative relationship with Terrorism and causal relationship with interest rate; whereas, no relationship is found with inflation. Outcome of the study explored Cointegration and a long-term relationship among study variables.
Impact of Macroeconomic Variables and Terrorism on Stock Prices in Pakistan
2019
The objective of this study is to investigate the impact of macroeconomic variables (interest rate, the exchange rate, consumer prices, oil prices, gold prices, market size, trade openness) and terrorism on stock prices of Pakistan, by employing Additive Outlier unit root (cointegration, and error correction model with a known Structural break. Time series quarterly data for the period January 2000December 2016, consisting 68 observations of each variable, was used in this study. The cointegration reveals that there is a signifi cant long-run relationship among the variables. The results found through an error correction model that the long-run bi-directional causality exist between stock prices, exchange rate, industrial production index, and openness. However, the results do not provide evidence of any signifi cant short-run causality between most of the variables.
Quantifying the Impact of Terrorism on Financial Markets of Pakistan
2018
Terrorism is one of the grave global issues that demands corrective action to avoid its detrimental consequences. Pakistan has been facing serious challenges of terrorism and there is a need to measure the damage done by this perilous ailment. Terrorism can impact a country in multiple manners however; this study focuses on measuring the association of terrorism on financial markets of Pakistan. This study analyzes the impact of terrorism on Karachi Stock Exchange 100 as it represents all sectors of the Karachi Stock Exchange and includes the largest companies on the basis of their market capitalization. This study also analyzes impact of terrorism on Pakistan Euro/PKR exchange rate. Generalized Auto Regressive Conditional Hetroscedasticity has been used to conclude that, in post-9-11 regime, Pakistan's stock market is not responsive to number of attacks per day and number of deaths shows no effect both in pre-9-11 and post-9-11 era. Moreover, in post-9-11 regime Pakistan's stock market has shown increased response to attack in a major city. In post-9-11 regime, foreign exchange market of Pakistan is less responsive to number of attacks per day in the post-9-11 regime as compared to post-9-11 regime. Moreover, attacks per day and number of deaths showed no effect on foreign exchange market of Pakistan both for pre-9-11 and post-9-11 regime.
Impact of Terrorism on Stock Market: A Case of South Asian Stock Markets
Journal of Accounting and Finance in Emerging Economies
The purpose of this study is to examine the impact of terrorism on stock markets of South Asia namely, Karachi Stock Exchange 100 index (Pakistan), Bombay Stock Exchange (India), Colombo Stock Exchange (Sri Lanka) and Chittagong Stock Exchange (Bangladesh). Monthly panel data has been used for the period of January 2000 to December 2016. Terrorism events happened during the period of 2000 to 2016 have been incorporated to examine the impact of terrorism on stock market returns of South Asia. DCC GARCH through R software is used to analyze the impact of terrorism on stock market returns and to analyze the spillover effect of terrorism in one country and on the stock markets of other countries of South Asia. The results indicate that terrorism has significant and negative effect on stock market returns of Pakistan, India and Bangladesh but insignificant in Sri Lanka. Results also shows that stock markets return of Pakistan, India, and Bangladesh are significant and positively correlat...
Impact of Terrorism on Financial Markets of Pakistan (2006-2008)
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The study is an effort to estimate the impact of terrorist activities on the financial markets in Pakistan over the period of two years i.e. 2006 to 2008. It also finds out the extent and direction of relationship between the terrorist activities and three financial markets of Pakistan, which are the Karachi Stock Exchange, the FOREX market and the Interbank market. After collection of the primary data for the terrorist activities on daily basis and the secondary data on the indicators of the three markets, by using the OLS model it attempts to quantify the impacts of various types of terrorists’ activities on financial markets. We have found during our analysis that the terrorist activities adversely affect the financial markets under study but the significance varies for different markets. Along with terrorist activities many other stochastic activities are responsible for the adverse performance of financial markets which have not been taken into account. The study recommends the...
Influence of Terrorist Activities on Financial Markets: Evidence from KSE
Financial Assets and Investing, 2013
This paper investigates the influence of terrorist activities taking place in Pakistan on the KSE (Karachi Stock Exchange) for the period of 01/2005 to 12/2010 using the GARCH & GARCH- EVT to identify the relationship between these two variables; the study establishes that terrorist activities adversely affect the financial markets and in the case of KSE, it is a highly significant relation. The reason why the negative relationship exists is because of the foremost increase in the number of terrorism attacks in Pakistan.
Impact of Terrorism on the Financial Markets of Pakistan
2010
The study is an effort to estimate the impact of terrorist activities on the financial markets in Pakistan over the period of two years i.e. 2006 to 2008. It also finds out the extent and direction of relationship between the terrorist activities and three financial markets of Pakistan, which are the Karachi Stock Exchange, the FOREX market and the Interbank market. After collection of the primary data for the terrorist activities on daily basis and the secondary data on the indicators of the three markets, by using the OLS model it attempts to quantify the impacts of various types of terrorists’ activities on financial markets. We have found during our analysis that the terrorist activities adversely affect the financial markets under study but the significance varies for different markets. Along with terrorist activities many other stochastic activities are responsible for the adverse performance of financial markets which have not been taken into account. The study recommends the...
Market miracles: Resilience of Karachi stock exchange index against terrorism in Pakistan
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Terrorism plays a pivotal role in influencing the stock indexes of many countries. This research article claims to be first in accessing the asymmetrical effect of multiple categories of terroristic activities on stock indexes in the presence of macroeconomic volatility. This research utilized a Non-linear autoregressive distributive lag model (NARDL) to find out the asymmetrical relationship between terroristic disruptions and stock indexes. Data on terroristic attacks have been incorporated from 2002 to 2015, and more than 4600 observations taken into account. Positive shocks to attacks on mosques, killed in mosque attacks, killed in drone attacks, and army personal fatalities are negatively affecting the stock prices in the short run. Results indicated that such disruption causes a temporary negative effect on stock indexes only in the short run but in the long-run stock exchange remains resilient against such disruptions.
Impact of Political Instability and Terrorism on Stock Returns: Evidence from Pakistan
Jinnah Business Review
This study examines the impact of terrorist activities and regime in Pakistan on the return and volatility dynamics of the financial markets in Pakistan between year 2000 and 2010. The study constructs two dummy variables that quantify political instability and terror and examine the effect on stock market volatility. An ARCH and GARCH model to discover evidence that terrorism and regime has a significant impact on both the return and volatility dynamics of stock markets. To capture the asymmetries in terms of negative and positive shocks, this study also uses threshold GARCH (TGARCH) and an exponential GARCH (EGARCH) model. From both of the TGARCH and EGARCH results, it can be reveal that for the return of KSE-100, there are asymmetries in the news that shows bad news has a larger effect on the volatility of return than good news. Finally study of the reaction of the stock market to terrorist events may also provide indication to investors and speculators to adjust their positions ...
The Effect of Terrorism on Capital Market Returns: An Empirical Analysis of Emerging Market
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The empirical findings unfold the impact of terrorism collisions on the stock returns using 330 terrorist incidents took place in Pakistan from 2000 to 2017. The GARCH (1,1) methodology is employed to estimate the impact of terrorist incidents chosen based on the human loss. This study observes that the influence of terrorist attacks’ changes with the days of the week, target type and surprise factor. The findings conclude that the terrorist attacks that target the security forces and commercial business places have a significant unfavorable impact on the stock returns. The significant impact of terrorist attacks on Monday and Tuesday confirm the overreaction of investors to terrorist transpires. Furthermore, the more surprise factor between the terrorist attacks exacerbates the adverse effect on market sentiments.