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The Response of the Pakistani Stock market to a Cataclysmic Event

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  • Javid, Attiya Yasmin

Abstract

This study has examined the reaction of Pakistani stock market to earthquake of October 8, 2005 and its impact on the price, volume and volatility behavior of sixty firms listed on Karachi Stock Exchange (KSE) The event study methodology is adopted to assess the KSE response to this unforeseen disaster and result shows that it quickly rebounded. The market displayed amazing resilience by being effected less severely than it was expected by bouncing back following its initial level because the market was already in recession after mi-March 2005 decline. As regards the firm level activities, the analysis indicates that the increase in the return and volume of cement, steel, food, chemicals and pharmaceuticals and banking stocks indicates that individual has expectation for the upcoming demand of investment in these sectors. Furthermore there is no significant increase in the volatility because the investors take lessons from the crash of March 2005 and seem certain about the future outlook. These findings support the hypothesis that Pakistani market is reactive to unanticipated shocks however, it is resilient and it recovers soon from the catastrophic shock.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37565.

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Date of creation: 2009
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Publication status: Published in NUST Journal of Business and Economics 2.2(2009): pp. 19-40
Handle: RePEc:pra:mprapa:37565

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Related research

Keywords: Event study; Kashmir earthquake; risk; return; volume; GARCH-M model;

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  1. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  2. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
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  5. 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.
  6. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Mitchell, Mark L. & Netter, Jeffry M., 1989. "Triggering the 1987 stock market crash : Antitakeover provisions in the proposed house ways and means tax bill?," Journal of Financial Economics, Elsevier, vol. 24(1), pages 37-68, September.
  8. 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.
  9. Damodaran, Aswath, 1985. "Economic Events, Information Structure, and the Return-Generating Process," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 423-434, December.
  10. 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.
  11. Schwert, G William, 1981. "Using Financial Data to Measure Effects of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 121-58, April.
  12. 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.
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