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

Author

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  • Attiya Y. Javid

    (Pakistan Institute of Development Economics, Islamabad.)

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," PIDE-Working Papers 2007:37, Pakistan Institute of Development Economics.
  • Handle: RePEc:pid:wpaper:2007:37
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    File URL: https://www.pide.org.pk/pdf/Working%20Paper/WorkingPaper-37.pdf
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    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.

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    Keywords

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    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

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