Impact of Political Instability and Terrorism on Stock Returns: Evidence from Pakistan (original) (raw)
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JINNAH BUSINESS AND ECONOMICS RESEARCH JOURNAL
The purpose of the study is to investigate the impact of market anomalies (days of the week), political shocks, and COVID-19 on Pakistan Stock Exchange (PSX). The analysis employs dummy variables for capturing the effects of the variables i.e., days of the week, political shocks, and COVID-19. Generalized AutoRegressive Conditional Heteroscedasticity (GARCH) model was used for the empirical research of the volatility of stock returns by using a sample period of daily data from 11 January 2016 to 30 April 2021. Result showed that Friday had a negative, and Wednesday had a significant positive impact on stock returns. While Monday, Tuesday and Thursday were found insignificant. Twenty-two notable political shocks were investigated during the study period except the visit of Saudi-Prince King Salman. A decrease in oil prices during March-2020 showed no impact on stock return, while other political shocks significantly affected stock returns. Moreover, COVID -19 waves had a significant ...
SSRN Electronic Journal, 2000
This study examines the impact of terrorism on stock returns and volatility from an econometric perspective. Taking daily returns within the sample period May 1985 -January 2007, the relevant hypotheses are tested in the context of the Colombo Stock Exchange. A GARCH specification is used to estimate parameters, thus explicitly allowing for the time-varying volatility effect. The attacks are chosen based on the number of civilians killed, whether the attacks are targeted at significant people or significant locations.
Stock Market Reaction towards Terrorism: An Evidence Based on Seasonal Variation in Pakistan
Journal of Economic Impact, 2021
This study examined whether the impact of terrorism events on the stock market varies based on seasonal anomalies (i.e., spring, summer, autumn, and winter). For this purpose, this study selected and obtained the data of 344 terrorist events that occurred in Pakistan and daily closing index price data of KSE 100 for the period ranging from 2008 to 2017. To fulfil the study's objective, this study applies the event day analysis by using five days window (-2, -1, 0, +1, +2) by employing the Exponential Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. The findings of this study shows that there is no significant impact of terrorist events on stock returns in Pakistan on pre-event day 2 and event day. However, terrorism events have a significant positive impact on stock returns on pre-event day 1 and post-event day 1. On the contrary, stock returns on post-event day 2 showed a significant positive but in negative direction. In addition, this study also found...
How Terrorism and Macroeconomic Factors Impact on Returns: A Case Study of Karachi Stock Exchange
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.
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.
The Effect of Terrorism on Capital Market Returns: An Empirical Analysis of Emerging Market
2020
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.
Stock Market Reaction to Terrorist Attacks: Empirical Evidence from Front Line State
Social Science Research Network, 2010
The world financial markets have reacted in a highly consistent pattern to the incident of 9/11 in the United States, suicide blasts at night clubs at Bali in 2002, the Madrid and London train bombings in 2004-2005 and a series of continuous blasts and suicide attacks in Pakistan. In this study, we examined the effect of terrorist attack news on returns and volatility for the Karachi Stock Exchange. We employ the EGARCH model proposed by Engle and Ng (1993) as it allows good and bad news to have a different impact on volatility. Our results ndicate that terrorist attack news has negative impact on the returns of all the sector indices. However, news of these events increased the volatility of KSE100 index and financial sector index. Further it is concluded that the results of oil and gas, and industry are not statistically significant in response to terrorist attack news, indicating that such type of news does not affect the volatility of these two sectors. Moreover, volatility asymmetry is negative in all of the sectors including KSE100 confirming leverage effect.
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...
The Impact of Major Terrorist Attacks on Stock Prices: The Case of Karachi Stock Exchange
Asian Economic and Financial Review, 2018
Terrorist attacks tend to happen concomitantly, begetting widespread violence, perturb individual routine life, bring dire effect on the economy and ultimately cause volatility in stock prices. This research tries to assess the impact of substantial terrorist incidents that took place in the last five years in Pakistan on returns of major stock indices. We divide the methodology section into two segments: Event study is used in the first part to analyze the effect of three baleful terrorist attacks by employing secondary data of stock prices of KSE 100-index and ten major sectors of Karachi Stock Exchange. EGARCH model is employed to model volatility in the second segment of this paper for estimating the impact of eleven major terrorist incidents. With regards to the result obtained, it is concluded that out of eleven terrorist attacks, three prominent terrorist incidents that claimed more than a hundred deaths have significant negative impact on stock returns, however, the eight-mi...
Financial Econometrics, 2019
It is essential for financial institutions and academicians to understand volatility spillover and financial market returns. However, previous studies examined the effects of direct spillover only and ignored those of the newly emerging stock markets. Therefore, this study attempts to estimate the time-varying volatility of Pakistani and leading foreign stock markets. It also tries to explore the direct and indirect volatility spillover effect between Pakistani and eight leading foreign stock markets. Daily data were used from nine international equity markets (KSE 100, NIKKEI 225, HIS, S&P 500, NASDAQ 100, DOW JONES, GADXI, FTSE 350 and DFMGI) for the period between 2005 and 2016. The univariate GARCH and GJR models were employed for analysing volatility, and the multivariate GARCH Diagonal BEKK model was used to explore direct and indirect volatility spillover effects. In order to analyse the volatility spillover effect during and after the global financial crisis period, the data were categorised into two periods: between 2005 and 2009 and between 2010 and 2016. The Chow break-point test was also employed to identify structural breaks in return series due to global financial crises. Direct and indirect spillover effects were found between KSE100, S&P 500, NASDAQ 100, DOW JONES and DFMGI.