The impact of Political Instability and terrorism on Stock returns

Evidence from Pakistan


  • Bushra Mubeen Ijaz The University of Lahore, Sargodha Campus
  • Ammara Sarwar The University of Lahore, Sargodha Campus


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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How to Cite

Ijaz, B. M., & Sarwar, A. (2020). The impact of Political Instability and terrorism on Stock returns: Evidence from Pakistan. Competitive Social Science Research Journal, 1(3), 1–20. Retrieved from