Article

Terrorism and stock market development: Causality evidence from Pakistan

Journal of Financial Crime 01/2013; 20(1):116-128. DOI: 10.1108/13590791311287364

ABSTRACT Purpose– The aim of this paper is to explore the relationship between terrorist activities in Pakistan and the stock market development.

Design/methodology/approach– Using Terrorism Impact Factor (TIF), a unique score developed for this paper, an insight is provided into the causal relationship that exists between terrorism and Karachi Stock Exchange (KSE) index. Quantitative significance of the impact of terrorist activities on stock index is also discussed in the paper.

Findings– Through the empirics of the study, it is analyzed that terrorism negatively impacts stock market returns in the long run; whereas no significant relationship between stock market returns and terrorism is estimated in the short run.

Research limitations/implications– A potential limitation of the study was the constraint related to the available yearly economic growth and other economic variables’ data. The TIF created for the study was based on the terrorist activities from 2001 to mid-2011 on an incident-to-incident basis. A yearly measure would have provided 11 data points for the study, which are considered insufficient for econometric analysis.

Practical implications– It is recommended that governments pay particular attention to economic recovery in the aftermath of terrorist attacks. Policies aimed at combating terrorism must be the priority of the government, so that its harm can be reduced, if not exterminated. Social implications– Terrorism, with its all kinds of impacts, affects the society and its activities and therefore must be eliminated if an economy needs to prosper.

Originality/value– This study envisions the overall impact of terrorist activities, not just a single activity, on the health of the economy. For studying this impact, a Terrorism Impact Factor (TIF) scale has been developed for this study, based on the impact of each terrorist activity in the country.

1 Bookmark
 · 
225 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This article investigates the economic effects of conflict, using the terrorist conflict in the Basque Country as a case study. We find that, after the outbreak of terrorism in the late 1960's, per capita GDP in the Basque Country declined about 10 percentage points relative to a synthetic control region without terrorism. In addition, we use the 1998-1999 truce as a natural experiment. We find that stocks of firms with a significant part of their business in the Basque Country showed a positive relative performance when truce became credible, and a negative relative performance at the end of the cease-fire.
    American Economic Review 02/2003; 93(1):113-132. · 2.69 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: [eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed with wide income spreads allocated among few consumers whereas the second one is highly populated however not as wealthy. Among the results, we show that a low transportation costs induces the firm to exploit size effects through locating in the most populated region. Moreover, a small transport cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. [fre] Cet article d�veloppe une statique comparative de l'impact de diff�rents sc�narios d'investissement (projet d'infrastructure conduisant � une baisse mod�r�e ou � une forte baisse du co�t de transport inter-r�gional) sur le choix de localisation d'une entreprise en situation de monopole, au sein d'un espace int�gr� compos� de deux r�gions aux populations et revenus h�t�rog�nes. La premi�re r�gion, faiblement peupl�e, pr�sente de fortes disparit�s de revenus, tandis que la seconde, plus homog�ne en termes de revenu, repr�sente un march� potentiel plus �tendu. On montre que l'h�t�rog�n�it� des revenus constitue la force dominante du mod�le lorsque le sc�nario d'investissement privil�gi� par les politiques publiques conduit � des gains substantiels du point de vue du co�t de transport entre les deux r�gions. L'effet de richesse, lorsqu'il est associ� � une forte disparit� des revenus, n'incite pas l'entreprise � exploiter son pouvoir de march� au d�triment de la r�gion l
    Econometrica 01/1981; 49(4):1057-72. · 3.82 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The event study methodology is used to assess the effects of terrorism on global capital markets. We examine the U.S. capital market's response to 14 terrorist/military attacks dating back to 1915 and global capital markets' response to two recent events—Iraq's invasion of Kuwait in 1990 and the September 11, 2001 terrorist attacks. U.S. capital markets are more resilient than in the past and recover sooner from terrorist attacks than other global capital markets. Evidence suggests that this increased market resilience can be partially explained by a stable banking/financial sector that provides adequate liquidity to promote market stability and minimize panic.
    European Journal of Political Economy. 01/2004;

Full-text

View
128 Downloads
Available from
May 21, 2014