| Abstract: |
This study examines the impact of political events on the Pakistan Stock
Exchange with the help of larger data set, the stock market of Pakistan which
is considered the top-performing market in the region has suffered as well as
foreign investors are reluctant to invest in Pakistan stock markets due to
uncertainty caused by political instability. Pakistan is struggling against
many problems; political instability is a significant problem due to which the
economic growth of the country is being hindered and the confidence of the
investors has been shaken. A total of 66 political events were considered in
the study out of which 33 events were coded as positive and the other 33 were
deemed negative. The first-day abnormal return, five-day cumulative abnormal
return, and ten-day cumulative return were calculated for all of the events.
The political events were analyzed by segregating these into Pre-Musharraf,
Musharraf, and Post-Musharraf eras and also on the bases of their category.
This study finds evidence that political events affect the Pakistan Stock
Exchange, but their impact is different considering the economic and political
implications of these events. Certain events had a stronger impact on the
stock market like the takeover of Musharraf, suspension of the chief justice,
and assassination of Benazir Bhutto. Political events provided more consistent
results where elections yield positive stock returns and the selection of
prime minister yields negative stock returns after elections. Overall, this
study lays the foundation to make further explorations into the phenomenon of
uncertainty caused by political events in relevance to stock markets in
Pakistan. |