Bashir, Usman – Inam-ul-Haq , – Gillani, Syed Muhammmad Ahmad Hassan
Influence of Terrorist Activities on Financial Markets: Evidence from KSE
JEL: G14, G12, O16
terrorism, KSE, event study, Pakistan, GARCH
This paper investigates the influence of terrorist activities taking place in Pakistan on the KSE (Karachi Stock Exchange) for the period of 01/2005 to 12/2010 using the GARCH & GARCH- EVT to identify the relationship between these two variables; the study establishes that terrorist activities adversely affect the financial markets and in the case of KSE, it is a highly significant relation. The reason why the negative relationship exists is because of the foremost increase in the number of terrorism attacks in Pakistan.
Berrebi, C. and Klor, E. (2005). The impact of terrorism across industries: an empirical study, Hebrew University of Jerusalem, working paper accessed on January 7, 2007.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics, 31, pp. 307–327. DOI: 10.1016/0304-4076(86)90063-1
Chen, A. and Siems, T. (2004). The effects of terrorism on global capital markets. European Journal of Political Economy, 20, pp. 349-366. DOI: 10.1016/j.ejpoleco.2003.12.005
Carter, D. and Simkins, B. (2004). The market’s reaction to unexpected, catastrophic events: the case of airline stock returns and the September 11 the attacks. The Quarterly Review of Economics and Finance, 44, pp. 539-558.
Drakos, K. (2004). Terrorism - induced structural shifts in financial risk: airline stocks in the aftermath of the September 11th terror attacks. European Journal of Political Economy, 20, pp. 435-446. DOI: 10.1016/j.ejpoleco.2003.12.010
Eldor, R. and Melnick, R., (2004). Financial markets and terrorism. European Journal of Political Economy. 20, pp. 367 - 386. DOI: 10.1016/j.ejpoleco.2004.03.002
Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50 (4), pp. 987–1008. DOI: 10.2307/1912773
Glaser, M., and Weber, M., (2005). September 11 and Stock Return Expectations of Individual Investors. Review of Finance, 9, 243-279. DOI: 10.1007/s10679-005-7592-4
Karolyi, G. A. and Martell, R. (2006). The consequences of terrorism for financial markets. Working paper series. The Ohio State University.
Liargovas, (2010), The impact of terrorism on Greek banks. International Research Journal of Finance and Economics, 51.
Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica 59 (2), 347 – 370. DOI: 10.2307/2938260
Sandler, T. and Enders, W. (2002). An economic perspective on transnational terrorism. Working Paper, vol. 03 - 04- 02, Economics, Finance and Legal studies, The University of Alabama, Working paper Series.