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The economic cost of terrorism and natural disasters: A deeper analysis of the financial market markets of Pakistan

Najam, Najam Ul Sabeeh and Mehmood, Arshad Mehmood (2019): The economic cost of terrorism and natural disasters: A deeper analysis of the financial market markets of Pakistan.

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Abstract

Do natural disasters and terrorism affect the financial markets of Pakistan? We aimed to answer this question by studying a large dataset of stock returns of financial markets of Pakistan with respect to natural disasters and terrorist activities. The dataset consists of a total of 289 terrorist events and 45 natural disasters; taken from the Global Terrorism Database (GTD) and Emergency Database (EM-DAT), covering events from the year 2003 to 2017. The event study methodology used to analyze daily, weekly and monthly stock returns of concerned sectors. Calculated the Abnormal returns with the help of market adjusted return model. The findings show that terrorist events have a statistically significant negative impact on the banking sector returns as well as insurance sector returns. Furthermore, the impact on the Pakistan Stock Market is insignificant. The impact of natural disasters on stock markets was not significant however when studied separately the floods have a negative significant impact on bank returns while insignificant for insurance and stock market returns. On the other hand, earthquakes are negatively affecting the stock market but no impact has been reported significant neither for insurance nor for banks returns.

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