The role of terrorist events in determining stock returns in Pakistan: covering most vibrant era 2003-2013

Audi, Marc and Sulehri, Fiaz Ahmad and Ali, Amjad (2022): The role of terrorist events in determining stock returns in Pakistan: covering most vibrant era 2003-2013.

Abstract

This study explains the relationship and significance of terrorism attacks and Pakistan Stock Exchange behavior. This study uses standard event study methodology and data relating to the stock market index was collected from the website of the Pakistan Stock Exchange and data relating to terrorist events was collected from the newspapers of Business Recorder and DAWN. A total of 277 terrorist events have been considered in this study. The first-day abnormal return, five-day cumulative abnormal return, and ten-day cumulative return were calculated for all of the events. Terrorist events have been analyzed year-wise and also on the bases of their category like events related to foreigners, military, politics, and general terrorist events. This study finds evidence that terrorist events affect the stock market in Pakistan. But their impact is different considering the economic and political implications of these events. Terrorist events yield mixed results where the significance of the events differed considerably in their impact on the stock market. Moreover, the abundance of terrorist events also hindered the estimation as rare events bring the element of surprise and the market adjusts to more frequent events inappropriate manner. However, terrorist events relating to politics and foreigners yield more consistent results as these events were distributed across time with longer intervals. Overall, this study lays the foundation to make further explorations into the phenomenon of uncertainty caused by terrorist events in relevance to the stock market in Pakistan. Implications and directions for future research are also provided at the end of the study.

• Item Type: MPRA Paper
• Language: English
• Keywords: terrorism events; stock market,; abnormal returns
• Subjects: H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy

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