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Political instability and stock market returns : evidence from firm-level panel data of securities in Bangladesh

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  • Iqbal, Kazi
  • Tsubota, Kenmei
  • Shonchoy, Abu S
  • Hoque, Mainul

Abstract

Conflict, political uncertainty and its impact on stock market has been a subject of interest in the literature. However, no study has yet explored the impact of political strikes on stock market outcomes. Political strike -- locally known as Hartal in Bangladesh -- is a different form of conflict than war or street protest, which is recurrent in nature. Using Dhaka Stock Exchange daily trading data of firms for the period 2005-2015 and controlling for a host of variables such as day, month, year, day-of-year trend and firm fixed effects, we find that political strike has a negative and statistically significant impact on stock market return. Our results show that, on the day of a political strike, stock market return drops about 0.14% which is economically sizable. This effect gets pronounced as the frequency of strike increases, based on week, month or year count of occurrences. Impact heterogeneity reveals that large firms are affected more from hartals compared to smaller firms.

Suggested Citation

  • Iqbal, Kazi & Tsubota, Kenmei & Shonchoy, Abu S & Hoque, Mainul, 2018. "Political instability and stock market returns : evidence from firm-level panel data of securities in Bangladesh," IDE Discussion Papers 712, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper712
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    References listed on IDEAS

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    More about this item

    Keywords

    Political strikes; Stock price; Impact analysis; Securities;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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