IDEAS home Printed from https://ideas.repec.org/p/eab/financ/22199.html
   My bibliography  Save this paper

Stock Market Reaction to Catastrophic Shock : Evidence from Listed Pakistani Firms

Author

Listed:
  • Attiya Y. Javid

    (PIDE)

Abstract

This study examines the effect of the earthquake of October 8, 2005 on the price behaviour and activities of KSE. Sixty firms are selected from those listed on Karachi Stock Exchange, and the results are informative about the price behaviour of the stock market in response to unanticipated shock. The results reveal the fact that the earthquake had both a positive and a negative information content for KSE stocks. There is an increase in the return and volume of the cement, steel, food, and banking sectors, which indicates that investors have expectations of the upcoming demand of investment in these sectors. Furthermore, there is no significant increase in the volatility, because the investors seem certain about the future outlook and they take into account the March 2005 market crash. These findings support the fact that the stock market of Pakistan is reactive to unanticipated shocks and it takes no time to impact the market activities. The evidence also suggests that the Pakistani stock market is resilient, and that it recovered soon after the catastrophic shock.

Suggested Citation

  • Attiya Y. Javid, 2007. "Stock Market Reaction to Catastrophic Shock : Evidence from Listed Pakistani Firms," Finance Working Papers 22199, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:22199
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/22199
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Attiya Y. Javed & Ayaz Ahmed, 1999. "The Response of Karachi Stock Exchange to Nuclear Detonation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 777-786.
    4. Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-294, October-D.
    5. Salinger, Michael, 1992. "Value Event Studies," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 671-677, November.
    6. de Jong, Frank & Kemna, Angelien & Kloek, Teun, 1992. "A contribution to event study methodology with an application to the Dutch stock market," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 11-36, February.
    7. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    9. Leland, Hayne & Rubinstein, Mark, 1988. "Comments on the Market Crash: Six Months After," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 45-50, Summer.
    10. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    11. Fazal Husain, 1998. "A Seasonality in the Pakistani Equity Market: The Ramadhan Effect," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(1), pages 77-81.
    12. Damodaran, Aswath, 1985. "Economic Events, Information Structure, and the Return-Generating Process," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(4), pages 423-434, December.
    13. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    14. Schipper, K & Thompson, R, 1983. "The Impact Of Merger-Related Regulations On The Shareholders Of Acquiring Firms," Journal of Accounting Research, Wiley Blackwell, vol. 21(1), pages 184-221.
    15. McQueen, Grant & Roley, V Vance, 1993. "Stock Prices, News, and Business Conditions," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 683-707.
    16. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jauhar Abbas & Hammad Hassan Mirza & Haroon Hussain & Rana Yassir Hussain & Muhammad Saad & Masud Akhtar, 2021. "Stock Market Reaction towards Terrorism: An Evidence Based on Seasonal Variation in Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 3(3), pages 167-177.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Javid, Attiya Yasmin, 2009. "The Response of the Pakistani Stock market to a Cataclysmic Event," MPRA Paper 37565, University Library of Munich, Germany.
    2. Onur Enginar & Kazim Baris Atici, 2022. "Optimal forecast error as an unbiased estimator of abnormal return: A proposition," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(1), pages 158-166, January.
    3. Asiya Sohail & Attiya Yasmin Javid, 2014. "The Global Financial Crisis and Investors’ Behaviour; Evidence from the Karachi Stock Exchange," PIDE-Working Papers 2014:106, Pakistan Institute of Development Economics.
    4. ATM Adnan, 2018. "Home vs. Cross-Border Takeovers: Is There Any Difference in Investor Perception?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2018(2), pages 59-84.
    5. Attiya Yasmeen Javid, 2000. "Alternative Capital Asset Pricing Models: A Review of Theory and Evidence," PIDE Research Report 2000:3, Pakistan Institute of Development Economics.
    6. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    7. Capelle-Blancard, Gunther & Couderc, Nicolas, 2008. "What drives the market value of firms in the defense industry," Review of Financial Economics, Elsevier, vol. 17(1), pages 14-32.
    8. Omer Ahmed Sayed & Hussein Eledum, 2023. "The short‐run response of Saudi Arabia stock market to the outbreak of COVID‐19 pandemic: An event‐study methodology," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2367-2381, July.
    9. Paul-Olivier KLEIN, 2017. "Do Shareholders Value Bond Offerings? A Meta-Analysis," Working Papers of LaRGE Research Center 2017-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    10. Ahmad H. Juma’h & Yazan Alnsour, 2018. "Using Social Media Analytics: The Effect of President Trump’s Tweets On Companies’ Performance," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 17(1), pages 100-121, March.
    11. Franks, Julian R & Harris, Robert & Mayer, Colin, 1987. "Means of Payment in Takeovers: Results for the UK and US," CEPR Discussion Papers 200, C.E.P.R. Discussion Papers.
    12. Yadav, Pradeep K., 1992. "Event studies based on volatility of returns and trading volume: A review," The British Accounting Review, Elsevier, vol. 24(2), pages 157-184.
    13. Neelam Rani & Surendra S Yadav & P.K. Jain, 2015. "Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach," Vikalpa: The Journal for Decision Makers, , vol. 40(3), pages 293-312, September.
    14. Devaney, Michael, 2012. "Financial crisis, REIT short-sell restrictions and event induced volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 219-226.
    15. Rodrigo Saens, 1999. "Premia In Emerging Market Adr Prices:Evidence From Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 2(1), pages 51-70.
    16. Yun Shen & Damien Wallace & Krishna Reddy & Vikash Ramiah, 2022. "An investigation of CEO characteristics on firm performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3563-3607, September.
    17. Attiya Y. Javed, 2000. "Alternative Capital Asset Pricing Models: A Review of Theory and Evidence," PIDE-Working Papers 2000:179, Pakistan Institute of Development Economics.
    18. Chia-Lin Chang & Shu-Han Hsu & Michael McAleer, 2018. "An Event Study Analysis of Political Events, Disasters, and Accidents for Chinese Tourists to Taiwan," Sustainability, MDPI, vol. 10(11), pages 1-77, November.
    19. K. Chau & S. Wong & C. Yiu & Maurice Tse & Frederik Pretorius, 2010. "Do Unexpected Land Auction Outcomes Bring New Information to the Real Estate Market?," The Journal of Real Estate Finance and Economics, Springer, vol. 40(4), pages 480-496, May.
    20. Mateev, Miroslav & Andonov, Kristiyan, 2018. "Do European bidders pay more in cross-border than in domestic acquisitions? New evidence from Continental Europe and the UK," Research in International Business and Finance, Elsevier, vol. 45(C), pages 529-556.

    More about this item

    Keywords

    Catastrophic Shock; Market Model; GARCH Specification; Average Return; Market Volume; Market Volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:financ:22199. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shiro Armstrong (email available below). General contact details of provider: https://edirc.repec.org/data/eaberau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.