IMPACT OF POLITICAL AND CATASTROPHIC EVENTS ON STOCK RETURNS

Abstract

This study intends to find the impact of political and catastrophic events on stock returns of Karachi Stock Exchange (KSE-100 Index). A total of forty three political and four catastrophic events have been considered from May 1998 to September 2013. Political events are further divided into two groups i.e., favorable political events and unfavorable political events. The impact is checked for political, catastrophic, favorable political and unfavorable political events for 1 day, 5 days, 10 days and 15 days event windows. The results suggest that mean returns before and after political events were different on 5 days window. Thus, political events do have an impact on stock returns, however, it does not last longer and returns are normalized afterwards. Similarly, favorable political events also have impact on stock returns only on 5 days window. Unfavorable political events show abrupt (one day) impact and 5 days impact. Catastrophic events show no impact on stock returns using 1 day, 5 days and 10 days event windows. However, the impact was observed on 15 days event window. These results indicate that Karachi Stock Exchange is inefficient in semi strong form.