Instable Domestic Conditions and Textile Industry: The Case of Pakistan

Abstract

The foremost objective of this paper is to study the effects of domestic instability on the returns of the Textile Industry, which is one of the most affected industries of Pakistan. The instability in the country is due to socio-economic, political issues and the increasing war on terror, consequently energy-breakdowns, frequent strikes and political walk-outs have burst the performance of the Textile Industry. The paper is an Event Study Analysis, considers the five-year time period and observes the returns of textile industry in various domestically instable conditions of the country. The Regression Analysis is used to calculate the estimated returns where returns of KSE-100 are incorporated as the proxy of the market. In addition to this ARCH-GARCH models are employed to evaluate the volatility. The findings are consistent with the related studies that are applied to support the hypothesis of the study. It is concluded that there is a significant negative effect of domestic instability on the stock returns of the Textile Industry. Moreover there are two-way effect on the stock market, which means some conditions mark direct effect, where negative wave of disappointment captures the attentions of the investors and they become more coherent about their investment decisions and the other is indirect effect, that directly affects the industry units and indirectly changes the perceptions of the investors about the potential returns and risk related to the stock.