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Stock Market Reaction towards Terrorism: An Evidence Based on Seasonal Variation in Pakistan

Jauhar Abbas, Hammad Hassan Mirza, Haroon Hussain, Rana Yassir Hussain, Muhammad Saad and Masud Akhtar

Journal of Economic Impact, 2021, vol. 3, issue 3, 167-177

Abstract: This study examined whether the impact of terrorism events on the stock market varies based on seasonal anomalies (i.e., spring, summer, autumn, and winter). For this purpose, this study selected and obtained the data of 344 terrorist events that occurred in Pakistan and daily closing index price data of KSE 100 for the period ranging from 2008 to 2017. To fulfil the study's objective, this study applies the event day analysis by using five days window (-2, -1, 0, +1, +2) by employing the Exponential Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. The findings of this study shows that there is no significant impact of terrorist events on stock returns in Pakistan on pre-event day 2 and event day. However, terrorism events have a significant positive impact on stock returns on pre-event day 1 and post-event day 1. On the contrary, stock returns on post-event day 2 showed a significant positive but in negative direction. In addition, this study also found that stock market returns vary significantly based on seasonal anomalies. However, it is also revealed that the impact of terrorism (event day) on the stock market�s returns does not significantly vary during all seasons in Pakistan except autumn and similarly, the impact of terrorism (post-event day 1) on the stock market�s returns does not significantly vary during said weather seasons in Pakistan. Furthermore, the positive impact of terrorism (during post-event day 2) upon the stock market�s returns significantly differs during weather seasons of spring, summer, and autumn in Pakistan. As per the results, this study suggests that the investor should invest on event day and resell/ withdraw his investment on post-event day 1 in order to earn higher profit.

Keywords: Terrorism; Seasonal Anomaly; KSE 100 Index (search for similar items in EconPapers)
Date: 2021
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