Abstract
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 that stock market returns vary significantly based on seasonal anomalies. However, it is also revealed that the impact of terrorism (event day) on the stock market’s returns does not significantly vary during all seasons in Pakistan except autumn and similarly, the impact of terrorism (post-event day 1) on the stock market’s returns does not significantly vary during said weather seasons in Pakistan. Furthermore, the positive impact of terrorism (during post-event day 2) upon the stock market’s returns significantly differs during weather seasons of spring, summer, and autumn in Pakistan. As per the results, this study suggests that the investor should invest on event day and resell/ withdraw his investment on post-event day 1 in order to earn higher profit.
Highlights
It is a well-established argument by many researchers that there are several factors due to which stock markets underreact or over-react
This study has selected the 344 terrorist events that occurred in Pakistan which were obtained through Global Terrorism Database (GTD) and Closing Index price data of KSE 100 for the time span ranging from 2008 to 2017 were obtained by using yahoo finance as well as official website of PSX
In order to obtain the objective of this study, this study has selected the 344 terrorist events occurred in Pakistan for the period ranging from 2008 to 2017, which were obtained through Global Terrorism Database (GTD) and Closing Index price data of KSE 100 for the period ranging from 2008 to 2017 were obtained by using the yahoo finance as well as official website of PSX
Summary
It is a well-established argument by many researchers that there are several factors due to which stock markets underreact or over-react. In addition to the aforementioned studies,Essaddam and Karagianis (2014) focused on examining the impact of terrorism on stock returns of US equity markets and volatility. They utilized the GARCH Model through conducting CrossSectional Analysis and found that the effect eliminates after fifteen days. Another study byNajam and Mehmood (2019) documented the equity market response towards terrorism and natural disasters events in Pakistan For this objective, they selected the 289 terrorist and 45 natural disasters events from the year 2003 to 2017. The present study shows its interest by examining the impact of a series of terrorist attacks on PSX based on seasonal variations during a time period ranging from 2008 to 2017
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