Market miracles: Resilience of Karachi stock exchange index against terrorism in Pakistan

Abstract

Terrorism plays a pivotal role in influencing the stock indexes of many countries. This research article claims to be first in accessing the asymmetrical effect of multiple categories of terroristic activities on stock indexes in the presence of macroeconomic volatility. This research utilized a Non-linear autoregressive distributive lag model (NARDL) to find out the asymmetrical relationship between terroristic disruptions and stock indexes. Data on terroristic attacks have been incorporated from 2002 to 2015, and more than 4600 observations taken into account. Positive shocks to attacks on mosques, killed in mosque attacks, killed in drone attacks, and army personal fatalities are negatively affecting the stock prices in the short run. Results indicated that such disruption causes a temporary negative effect on stock indexes only in the short run but in the long-run stock exchange remains resilient against such disruptions.

Keywords:

• stock exchange resilience
• terrorism and stock indexes
• NARDL and BDS test of non-linearity
• terrorism and macroeconomic volatility
• terrorism in Pakistan and stock market performance

PUBLIC INTEREST STATEMENT

Do you think that terrorism has a negative impact on stock indexes?

This is the first research article that has found the non-linear effect of multiple attacks on stock indexes in the short run and long run. Interestingly, research findings indicate that positive shocks to attacks on mosques, killed in mosque attack, army personal fatalities, and killed in drone attacks are negatively associated with stock indexes only in the short run. However, the long-run effect of positive shocks to killings in drone and killed in mosque attacks on stock indexes are insignificant and positive shocks to army personal killed and attacks on mosque are having a positive effect on stock indexes. This shows that the KSE remains resilient against the number of terrorist attacks in the long run.

Policy recommendations

This research article contributed empirically by finding out the asymmetrical effect of multiple terroristic attacks on stock indexes. This is an important practical implication for academicians to study the short-run and long-run asymmetrical effect of multiple categories of terroristic attacks on the stock index of IRAN, INDIA, and IRAQ. There exists an asymmetrical relationship between stock indexes and terrorism rather than linear. This research also poses important policy guidelines for security agencies of Pakistan to deal with attacks on mosques, killing in mosque attacks, security personal fatalities and killed in drone attacks during the war on terrorism to make the stock exchange resilient in the short run. Short-term investors should also consider that certain terroristic attacks are having a negative effect on stock indexes in the short run so they should take into account the importance of terroristic attacks while investing in the stock exchange. However in long run, the KSE-100 indexes remained resilient.

correction

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. Drone attacks means total number of attacks made by US security agencies within Pakistan’s territories in order to destroy terroristic camps and militant strongholds (Warrior, 2015). Although it also questions Pakistan’s supremacy and sovereignty but Government of Pakistan regularly issue multiple stances that US security agencies are doing these attacks in collaboration with Pak Armed forces.

2. Observation on daily basis have been transformed into monthly basis by counting daily number of terroristic attacks of different categories for every month from 2001–2015. Major purpose of doing this is because of our research objective; to find out the effect of terroristic attacks on stock market in presence of macroeconomic volatility (Exchange rate). In existing literature many researchers have utilized monthly values of exchange rate in order to find out their effect on stock prices(Adjasi et al., 2011; Ajaz et al., 2017; Andriansyah & Messinis, 2019; Hyde, 2007; Kisswani & Elian, 2017; Mathur & Shekhawat, 2018; Salvatore, 2019; Umar & Sun, 2015). Daily exchange rate fluctuation for 14 years is very hard to get, equally non-existent and empirically undetermined.Kashif (2019) found the determinants of terrorism by using monthly time series data of inflation, GDP and poverty.

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Mosab I. Tabash

Dr Mosab I. Tabash is program director for Master of Business Administration at college of business, Al Ain University, UAE. He has also published numerous works in high impact factor Scopus and web of science journals.

Umaid A. Sheikh

Umaid A. Sheikh is expert in econometrics and is having interest for exploring symmetrical and asymmetrical linkages between macroeconomic and stock indexes. Previously he has also published numerous research articles in Web of Science Core Collection, Scopus indexed and Australian Business Dean Council. He is interested in applying Linear and Non-linear econometric approach for finding innovative interesting and “never explored before” linkages between variables of interest.

Muzaffar Asad

Dr Muzaffar Asad has completed his PhD from Malaysia and now associated with University of Bahrain as Assistant Professor. Previously, he has served Foundation University Islamabad as Associate Professor and University of Central Punjab, Lahore as Assistant Professor.