Event Study and Impulse Indicator Saturation Analysis to Assess Reaction of Terrorist and Political Events: Evidence from Oil and Gas Sector of Pakistan

Attiya Yasmin Javid,Bilal Ahmad

doi:10.29145/2020/jqm/040104

Attiya Yasmin Javid, Bilal Ahmad

Open Access

https://doi.org/10.29145/2020/jqm/040104

Copy DOI

Abstract

The objective of this study is twofold, first, to assess the impact ofterrorist attacks and political events on returns and volatility oil and gassector of Karachi Stock Exchange from the period of 2004 to 2014.Second, to compare the results of these events applying event studymethodology, event dummy analysis and impulse indicator saturation.Results indicate that the oil and gas sector reacts on the occurrence ofterrorism and political events and the results of two methodologiesevent study and event dummy analysis are almost similar. However,impulse indicator saturation is able to provide better results incomparison to event study and event dummy analysis because as itcaptures all breaks and co-breaks within a sample period,moreover it clearly helps in defining rebounding period of the market. JEL Classification Codes: G12, G14

Highlights

It is a well-known fact that stock markets react over some factors even if they are not directly related to the firm’s performance
This section discusses the response of daily returns against events by average abnormal returns (AAR) by applying Capital Asset Pricing Model (CAPM) and Mean Adjusted Returns Model (MARM)
Results reported in column 2 and 3 in Table 4.2 are depicting that terrorist attacks are significant only on the event day under the CAPM model in 11 days event window

Summary

Introduction

It is a well-known fact that stock markets react over some factors even if they are not directly related to the firm’s performance. The event study that is the oldest and most commonly used is based on the efficient market hypothesis (Fama, 1969). This hypothesis states that as new information becomes available as the result of some unexpected event, it is fully taken into account by investors assessing its present and future impact. It is based on the overall assessment of many investors who quickly update all available information in assessing each individual firm’s market value (McWilliams & Seigel, 1997). There are alternative methodologies for carrying out event study (MacKinlay, 1997)

Objectives

Methods

Results

Conclusion