The impact of Political Instability and terrorism on Stock returns
Evidence from Pakistan
Keywords:Terrorism, Political instability , stock
Stock markets are considered one of the key sources for the growth of economy. These financial markets are the strength of an economy. Terrorism and political instability negatively affect the stock market returns. Stock markets are considered one of the key sources for the growth of economy and for development of financial institutions of any country. These financial markets are the strength of an economy. Current study analyzed the impact of terrorism and political instability on stock returns in Pakistan stock exchange market. In this research monthly stock returns of KSE 100 Index from 2002 to 2019 and KMI 30 Index from 2012 to 2019 are taken as dependent variable while political instability and terrorism has taken as independent variables. Number of control variables as inflation, financial crisis, foreign direct investment, domestic Growth rate, and some governance variables as control of corruption, voice and accountability, regulatory quality and rule of law are used to investigate this relation. Objectives of the study are to check the impact of terrorism and political instability on stock returns. Consequently, study found that there is negative and significant relationship between stock returns, terrorism and political instability. All variables used in the study have significant impact on stock return except voice and accountability which shows insignificant impact on stock return for model one while Foreign direct investment, Global financial crisis and Inflation have insignificant relation with KMI 30 Index and other all variables have significant relation with KMI 30 Index. This study has practical implications in risk management practices. Moreover, the results of the study may be useful for shareholders, investors and policy makers.
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