The Impact of Terrorism And Political Events On Stock Market: Empirical Evidence From Pakistan

The aim of this paper is to explore the relationship between political & terrorist activities in Pakistan on the
stock market development. The paper presents data on the reaction of financial markets to the terrorist attacks and
political instability in Pakistan (2011-2014). T-statistic is used to measure the impact of terrorism and political
events on stock exchange market. In order to determine the Average return (AR), moving average method is
used .The results of the study have shown that Terrorism and Political events negatively affect stock market returns
in the short run; whereas there is no significant relationship between stock market returns, Terrorism and Political
events in the long run. A potential limitation of the study was the constraint related to the available yearly
economic growth and other economic variables' data. The data for the study was based on the terrorist & political
activities for the year 2010 to 2014 on an incident to incident basis. Based on the empirical results, it is being
recommended that governments should pay particular attention to economic recovery in the aftermath of
terrorist attacks and political unrest and the policies aimed at combating terrorism must be the priority of the
government, so that its harm can be reduced, if not exterminated. Political unrest can be addressed through
parliament house and judiciary. Terrorism and Political events, with its all kinds of impacts, affect the society and its
activities and therefore must be eliminated if an economy needs to prosper. This study envisions the overall impact
of terrorist activities and political events, not just as a single activity but also on the health of the economy. For
studying this impact, a t-statistics has been used for this study