Impact of Major Political Events on Stock Market Returns of Pakistan

Abstract

The purpose of this study is to check the impact of various political events on Karachi stock exchange. For this purpose nine major political events were taken under study during the period of 2007 to 2012. These events were Emergency rule of Musharaf, Benazir Bhutto Assassination, 2008 General Elections of Pakistan, Resignation of Musharaf, Restoration of Chief Justice of Pakistan, Abbotabad Operation, Salala Attack, De-seating of Prime Minister and 2012 Elections of USA. For the purpose of this study, these events were divided into two categories one is those events that caused changed in government policy and the other is those events that did not caused change in government policy. “t” statistics was used to check the significance of every event. Results showed that only those events affected the returns of Karachi stock exchange that caused change in government policy where those events which did not cause change in government policy had no effects on returns of Karachi stock exchange. Moreover it was also seen that Karachi stock exchange readjust itself very quickly i.e. effect of any news did not last for more than  two days.

Keywords: Political Instability, Stock Market Returns, Financial Market, Economic Growth