Stock Market Reaction to Political Events (Evidence from Pakistan)

Abstract

This study examines the impact of events of different nature like: political, natural calamities and terrorism on the share prices of the financial sector of Pakistan. A sample of 14 companies are selected randomly from the financial sector (Insurance and Banking) listed on the KSE-100 index. The time span is of four years i-e 2007-10. The data is analyzed through paired samples t-test statistics. The results indicate that events have significant impact on the stock prices and prices behave negatively when a major event emerges on national or international front. A joint effort is required from different individuals, stake holders, regulators, economists, investors, government and foreign officials to secure the effectiveness of the financial market in Pakistan from the curse of political pressure, terrorists and suicidal bombing which in return help in the prosperity of the country. To encourage and motivate the investors both domestically or internationally the governance system in country should be fair and transparent and secure environment would increase the morale of the investors.

Keywords: Paired sample t-test statistics; Events study Method Approach, Stock Prices