چکیده:
Terrorism, political system instability and currency rate fluctuations are the three most evident issues of 21st century. In this study, comparative analysis is performed to check the impact of all these issues on PSX Volatility. EGARCH (1,1) approach is used on four different kinds of data collected from 1st January 2000 to 31st December 2015. Terrorist events, FX return fluctuations with restoration of democratic political system in Pakistan are considered in this study. Results confirm that democratic political government reduces PSX volatility while terrorism increases it. Terrorist attacks are categorized into various categories. Event day analysis confirms that Pakistan stock market (PSX) is efficient enough to absorb the effects of terrorist attack within a day. Holding portfolios and performing arbitrage activities by the investors diversify the risks due to foreign exchange (FX) fluctuations which show no significant impact on PSX volatility.
خلاصه ماشینی:
Event day analysis confirms that Pakistan stock market (PSX) is efficient enough to absorb the effects of terrorist attack within a day.
Factors like financial markets variations (FX fluctuations), macroeconomic changes (like political system changes) and occurrence of surprise events (like terrorist event) are responsible for stock market volatility (Mnasri & Nechi, 2016; Nelson, 1991; Pástor & Veronesi, 2013; Walid, Chaker, Masood, & Fry, 2011).
This study is comprehensively contributing to the existing body of literature by focusing on Pakistan Stock Exchange (PSX) affected due to domestic political issues, FX return fluctuations and terrorist events (specially focusing on domestic and foreign terrorism along with other terrorism dimensions mentioned in Table 1).
Foreign exchange rate of Pakistan Source: Business Recorder Major finding of the study confirmed that, PSX volatility is massively affected because of unstable domestic political system and terrorism.
Terrorism within the boundaries of a country takes place in any city in the form of armed assault, bombing and suicide attacks while targeting business organizations, government, educational institutions, security forces and religious institutions by using explosives, firearms and unique arms and ammunition increase the volatility of the PSX on event day but the market inbuilt resilience absorbs the effect so it recovers back on next day.
Abadie and Gardeazabal (2008), and Arin, Ciferri, and Spagnolo (2008) proved that terrorism had significant impact on stock markets volatility because of increased allocation of productive resources to defensive purposes and increased capital flight due to decrease in return on investment.