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Impact of terrorism and political instability on equity premium: Evidence from Pakistan

Author

Listed:
  • MengYun, Wu
  • Imran, Muhammad
  • Zakaria, Muhammad
  • Linrong, Zhang
  • Farooq, Muhammad Umer
  • Muhammad, Shah Khalid

Abstract

The study quantifies the impact of terrorism and political instability on firm equity premium in Pakistan using panel data for 306 non-financial firms for the period 2001 to 2014. Other variables included are law & order, government regime change and financial crisis of 2007/08. The estimated results reveal that terrorism has statistically significant negative impact on firm equity premium in Pakistan. This result is robust with alternative equation specifications. The result also remains same when terrorism variable is replaced with external and internal conflict variables. Law & order variable has significant positive effect on firm equity premium, which implies that equity premium increases with the improvement in law & order situation in the country. Equity premium also increases with government stability and when there is democratic system in the country. The result also reveals that global financial crisis of 2007/08 negatively influenced the firm equity premium. The study suggests some policy implications.

Suggested Citation

  • MengYun, Wu & Imran, Muhammad & Zakaria, Muhammad & Linrong, Zhang & Farooq, Muhammad Umer & Muhammad, Shah Khalid, 2018. "Impact of terrorism and political instability on equity premium: Evidence from Pakistan," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 1753-1762.
    • Handle: RePEc:eee:phsmap:v:492:y:2018:i:c:p:1753-1762
    DOI: 10.1016/j.physa.2017.11.095
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    Citations

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    Cited by:

    1. Gok, Ibrahim Yasar & Demirdogen, Yavuz & Topuz, Sefa, 2020. "The impacts of terrorism on Turkish equity market: An investigation using intraday data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    2. Alexandros Korkovelos & Dimitrios Mentis & Morgan Bazilian & Mark Howells & Anwar Saraj & Sulaiman Fayez Hotaki & Fanny Missfeldt-Ringius, 2020. "Supporting Electrification Policy in Fragile States: A Conflict-Adjusted Geospatial Least Cost Approach for Afghanistan," Sustainability, MDPI, vol. 12(3), pages 1-34, January.
    3. Uddin, Moshfique & Chowdhury, Anup & Zafar, Sheeba & Shafique, Sujana & Liu, Jia, 2019. "Institutional determinants of inward FDI: Evidence from Pakistan," International Business Review, Elsevier, vol. 28(2), pages 344-358.
    4. Abbasi, Kashif & Jiao, Zhilun & Khan, Arman & Shahbaz, Muhammad, 2020. "Asymmetric impact of renewable and non-renewable energy on economic growth in Pakistan: New evidence from a nonlinear analysis," MPRA Paper 101854, University Library of Munich, Germany, revised 13 Jul 2020.
    5. Mohamed, Hassen & Alimi, Mohsen & Ben Youssef, Slim, 2021. "The role of renewable energy in reducing terrorism: Evidence from Pakistan," Renewable Energy, Elsevier, vol. 175(C), pages 1088-1100.
    6. Muhammad Imran & Mengyun Wu & Shuibin Gu & Shah Saud & Muhammad Abbas, 2019. "Influence of economic and non-economic factors on firm level equity premium: Evidence from Pakistan," Economics Bulletin, AccessEcon, vol. 39(3), pages 1774-1785.
    7. Muhammad Imran & Xiangyang Liu & Rongyu Wang & Shah Saud & Yun Zhao & Muhammad Jalal Khan, 2022. "The Influence of Digital Economy and Society Index on Sustainable Development Indicators: The Case of European Union," Sustainability, MDPI, vol. 14(18), pages 1-16, September.

    More about this item

    Keywords

    Equity premium; Terrorism; Political stability; Financial crisis; Pakistan;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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