Pakistan's Political Economy and Stock Market Returns

Ahmed Muneeb Mehta, Aamir Soha

Abstract

The objective of this research is to find out the effect of uncertain political events on the Pakistan Stock exchange (KMI 30& KSE 30) from 2012 to 2019. This study examines how uncertain political events affect Pakistan's stock market using mean adjusted return models and event study methods. The findings of the study show that the Islamic stock market is significant at 5 events and conventional market is significant at 6 events out of 21 events. Both markets responded events count have a minor difference. Islamic market is more intense in response to political events; its significance level is high in responses. The findings of the study show that both markets are inefficient for short timeframe, after nearly 15 days, they absorb the noisy data and begins normalizing. The research contributes to the literature by proving that KSE 30 is less effective than KMI 30, as conventional markets respond more to different uncertain political events than Islamic markets. This research study is expected to make a significant contribution, especially in the Pakistan capital market literature as in this study researchers incorporate multiple political events and its impact on different stock markets performance. Further research may examine differences in the response of the KSE and other Pakistani stock exchanges (such as Lahore and Islamabad) to Pakistani political events.