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Terrorism and Pakistan Stock Exchange: Evidence from ‘War on Terror’

Gul Bano1, Naimat U. Khan2

Abstract
This paper addresses the impact of terrorism on Pakistan Stock Exchange (PSX) in the wake of ‘war on terror’. Being a front line country in the ‘war on terror’, Pakistan witnessed a number of terrorist attacks across the whole country.
This research analyses the 90 terrorist events happened across six major cities (Karachi, Islamabad, Lahore, Peshawar, Rawalpindi, and Quetta) for 33 listed firms over the period of 2000-2011 using event study method. The sample years (2000-2011) are used in the research paper as most of the terrorist attacks in Pakistan took place in this period, according to Global Terrorism Database. Any unexpected returns around various terrorist events are calculated by market model and market adjusted model. Any significant unexpected returns in stock prices visà-vis terrorist attacks conform the existence of semi-strong form of Efficient Market Hypothesis (EMH)..