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Terrorist Activities, Investor Sentiment, and Stock Returns: Evidence from Pakistan

Author

Listed:
  • Hashmat Ali

    (Department of Management Sciences, Abbottabad University of Science and Technology, Pakistan)

  • Zulfiqar Ali Menon

    (Department of Business Administration, University of Sindh, Mirpurkhas campus Pakistan,)

  • Ajab Khan

    (Department of Management Sciences, Abbottabad University of Science and Technology, Pakistan)

  • Muhammad Muddassar Khan

    (Department of Management Sciences, Abbottabad University of Science and Technology, Pakistan)

  • Imad Ali

    (College of Economics and Management, Northwest A&F University, China,)

  • Khan Baz

    (School of Economics and Management, China University of Geosciences (Wuhan), China,)

  • Muhammad Arif

    (Department of Management Sciences, University of Swabi, Khyber Pakhtunkhwa, Pakistan,)

  • Manzoor Hussain

    (Department of Management Sciences, Balochistan University of Information Technology, Pakistan,)

  • Waqar Jalal

    (Department of Management Sciences, Abdul Wali Khan University Mardan, Pakistan)

Abstract

Motivated by the previous literature on investor sentiment and assuming that terrorist activities affect investor mood, this study attempts to address the psychological impact of terrorism for investors in Pakistan stock market. Apart from a direct economic loss, major terrorist incidents create/exacerbate uncertainty and fear in the market. The investors are likely to over-respond to such incidents and once the dust settles the market tend to recover. The analysis of cumulative abnormal returns in the aftermaths of terrorist incidents and the volume analysis provide strong evidence that the terrorist incidents adversely affect investors' sentiments and confidence in the market as manifested through relatively feeble trading volumes.

Suggested Citation

  • Hashmat Ali & Zulfiqar Ali Menon & Ajab Khan & Muhammad Muddassar Khan & Imad Ali & Khan Baz & Muhammad Arif & Manzoor Hussain & Waqar Jalal, 2020. "Terrorist Activities, Investor Sentiment, and Stock Returns: Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 139-148.
    • Handle: RePEc:eco:journ1:2020-03-18
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    References listed on IDEAS

    as
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    3. Gul, Tayyeba Gul & Hussain, Anwar Hussain & Bangash, Shafiqullah Bangash & Khattak, Sanam Waghma Khattak, 2010. "Impact of Terrorism on Financial Markets of Pakistan (2006-2008)," MPRA Paper 41990, University Library of Munich, Germany.
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    Cited by:

    1. Afees A. Salisu & Philip C. Omoke & Abdulsalam Abidemi Sikiru, 2023. "Geopolitical risk and global financial cycle: Some forecasting experiments," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(1), pages 3-16, January.

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    More about this item

    Keywords

    Sentiment; Terrorism; Stock Market; Pakistan;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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