Role of Terrorist Events

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International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 Examination of Stock Markets Performance in Emerging Economies during Difficult Times: Role of Terrorist Events

Dr. Ashfaq Ahmad Aamir Sohail Adil Riaz Farhad Hussain Iqra Ihsan Associate Professor, Hailey College of Commerce, University of the Punjab, Lahore. Email:[email protected] Lecturer Commerce, University of Sargodha (Sub Campus Bhakkar) [email protected] Lecturer Commerce, Government College University Faisalabad (Sub- Campus Hafiz Abad), Pakistan. , Ph.D. Scholar, Hubei University, China M.Com Scholar, Hailey College of Commerce, University of the Punjab, Lahore

Abstract This study examines the effect of selected local and global terrorist events on Pakistan Stock Exchange by assessing KMI-30 and KSE-30 during the last decade. Data was collected for the daily closing stock prices of KMI-30 and KSE-30 for a period of 10 years (2010 to 2019). Twelve major terrorist events were selected from the South Asian Terrorism Portal (SATP) creating negative outcomes (deaths, injuries and other damages). Event study method was applied through estimation windows for Pre-Event, Event and Post-Event. Results indicate that the majority of the events have a significant impact on KSE-30 and KMI-30. More specifically the findings suggested that, Suicide attack on political offices, Attack on the Jamia masjid Madina, Twin suicide assaults at Parachinar, Assault on Army Public School, Paris, France bombing at bar, restaurant, theater and stadium, Self- destruction bombarding in Belgium, Suicide bombarding at Quetta’s Civil Hospital, Attack on Shrine of Lal Shahbaz and Attack on the political rally of the Balochistan Awami Party has significant effect on both markets. Further, results indicate that Attack on Shias at Alamdar road in Quetta, Bomb blast at Karbala Maula Imambargah and Attack on the New Sariab Police Training College has insignificant impact on both markets. According to the results of the study it is clear that KMI-30 and KSE-30 are unsystematic and does not suck up noisy information immediately. Efficient Market Hypotheses proves here wrong. Study has also shown that local events have severe effect on both indexes as compare to global events. This study could enhance understanding of different stakeholders regarding influence of terrorism on KMI-30 Index, Islamic stock market and KSE-30 Index, conventional index. Key words: KMI-30, KSE-30, Terrorist Events, Pakistan Stock Exchange, Event Study

1. INTRODUCTION

Terrorism activities are uncertain events that cause shock, fear, and bad mood among investors. Due to these events stock market sharply decline because of panic-selling response from investors [1]. Mostly, prices of stock incorporate expectations of investors, but due to uncertain events like terrorism its react sudden unpredicted shocks. There is a growing trend from researchers to investigate the effect of terrorism on stock market indices. Literature support the notion that such types of activities adversely effect on stock market which lead to 1063 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 significant downfall of the market after accruing such event [2]. The role of stock markets for emerging economies is pivotal. Survival of emerging economies is impossible without stock markets. Stock markets of emerging or developing economies have greater risk than developed economies. It is difficult to predict the movement of stock markets but still it is measured as an important part for any country economy. Stock markets effect directly or indirectly with the event happening inside the country or outside the county. Financial markets are interconnected due to technology and News of any event (positive or negative) could spread quickly. Abnormality in one market could create impact on worldwide markets. Terrorist incidents can create uncertainty in the stock market with lower returns and higher volatility. Negative association is reported between terrorist activities and KSE 100 index based upon EGARCH model [3]

Terrorist activities created serious damages and losses to the residents and market that is evident report of SATP as 1,803 causalities in 2016, 1,260 in 2017 and at least 71 fatalities in 2019. Pakistan is seriously affected by terrorism due to front line ally on war against terror. It created turbulent environment, high volatility, decline in foreign investment, increase in defense budget etc. This study examined the influence of terrorist event on two main indices of Pakistan stock exchange (PSX) i.e. KSE-30 index and KMI-30 index. It is observed that contagion effect of single event like 9/11 affecting almost every country [4] or the impact of different events on a limited number of countries [5]. There is an evident negative association between events and stock market performance. Similarly, There is a very scarce work available relevant to reaction of Islamic stock market i.e. KMI-30 Index during uncertain events and difficult times. Existence of KSE-30 Index and KMI-30 Index for Shariah compliant entities necessitates an empirical investigation.

This study examines the change in sentiments of investors after the terrorist attacks on both indices to understand how investors assess terrorist news or how their behavior is affected after the attacks. It is found that investor’s sentiments are negatively affected due to information dissemination about the terrorist attack through different channels [6]; it may create fear and panic condition which adversely affect stock markets as investors lose their confidence [7] due to increased level of anxiety among investors who prefer to play with safer hands by taking off their investment in panic situation. Therefore, the study investigates the effect of local and global terrorist events on KSE-30 index and KMI-30 index by comparing the both indices. It could help to anticipate the stock market in the future on happening of any terrorist event as investors can predict the both markets (KSE- 30&KMI-30) returns and volatility in returns for better decisions in emerging economies like Pakistan. Comparison of both markets (KMI-30&KSE-30) enables to take prompt decisions regarding investment or otherwise as a reaction of the markets to different terrorist activities. The performance of these markets affected by many factors i.e. political uncertainty, terrorism and natural disasters e.g. flood, earth quake and tsunami etc. It is reported that natural disasters have no significant impact on the returns of Stock markets during a period of 2013 to 2017 [8]. 2.0 LITERATURE REVIEW 2.1 Efficient Market Hypotheses Efficient market hypotheses (EMH) states that, trading of stock in market is always fair weather, it is about to buy the undervalue stock or sale overvalued stock. It is assumed that market behave normally e.g. if the happening event is good market will react positively and vice versa. Reaction of the market could depend on the nature of the happening/event. “In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects

1064 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value” [9] 2.2 Empirical Studies and Hypotheses Devolvement

Catastrophic events create fears among investors, therefore, its influence the investment behavior of investors. Investor’s sentiments like risk preference, asset prices etc. affected through these events. It is hard for market to return back in previous position quickly after an uncertain event [10], however, some investors state that market will recover within a month after such events [11]. In addition, some researchers also believed that after uncertain events the market recover quickly and it may not take more than one week to bring back to its index position [12]. After 9/11 the airline industry suffered a lot and it is found by different researchers that airline sector face greater decline in such types of events. Some researchers also point out that after Madrid attacks the stock index of MSCI fell by more than 4.5% in the first days after that event, while it dropped by 1.72% after the event [13]. Researchers reported negative association between global terrorist attacks and stock market index.

[14] Evaluated the risk and return of Dow Jones Islamic Market Index (DJIMI) and Dow Jones World (DJW) index by conducting co-integration time series analysis and reported no detectable correlation between these two indexes. Islamic markets in Asia are more exposed to shocks that are persistent. A correlation study was undertaken for transference on information between the Kuala Lumpur Syariah (KLSY) and Jakarta Islamic Indices (JKSY) and reported unsymmetrical effect of volatility transference [15]. The impact of psychological factors effecting investors behavior during panic situation and he concluded that such type of events negatively effect on investors investment behavior. After 9/11 the Dow Jones index suffered losses of more than 7% six days after the reopening of the American stock markets. Terrorist activities do not affect the stock market development in the short run. Anyhow, these terrorist episodes affect the performance of the stock market in the long run [16].

[17] Concluded that there is a cause and effect association between the Islamic stock market and traditional stock markets i.e. Asia, European stock markets and Brent oil markets with the exception of United States market. It was also highlighted that Islamic markets are not decoupled from the economic and financial crises. [18] Found that Islamic and conventional markets are affected by the global and regional events. Islamic markets in the US are less vulnerable to any inside regional shock but more vulnerable to any outside global incident. [19] Find that option prices are negatively affected due to three global terrorist events. It is noted that there is no distinction in terrorist events effect between little and large countries. However, developing countries are gravely affected by terrorism. Terrorist episodes have permanent effect on the developed countries markets because terrorist event can decline the stock value following the event.

[20] Argued in case of terrorist attacks, investors are really sensitive to such events as they prefer to invest in safer securities like government bonds etc. to avoid any risk. It is evident that political and terrorist events have a significant impact on stock market returns. In addition, the results showed that during the 15-day window of activity, the stock markets of South Asian countries were inefficient. The noisy information that the market does not absorb contradicts the assumption of the efficient market hypothesis. It is found that terror attacks have a short term association with stock market indexes and a negative association between terror attacks and stock market performance [21]. On the contrary, during artificial disasters or terrorist incidents, the index drops only on the day of the event and the next day, so investors should short sell the index on the day of the disaster and hold it until the end of the first working day following the incident. 1065 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075

[22] Find out that domestic terrorist attacks affect the volatilities of countries within which they take place. Global terrorist events did not influence the volatilities of Spanish and Irish markets. Moreover, the incidents of bombings bring the volatility within the worldwide stock market whereas hijacking, hostage and target killing did not bring any widespread change in stock market prices. It is inferred that negative impact of terrorist events on insurance companies on the event happening day as they are more sensitive to causalities, injuries and property damage. On the other side, banking sector shows less impact on the event occurrence day, while the stock markets indicate the insignificant impact on the returns as a result of terror. It is reported that that terrorism causes business disappointment in developing and delicate nations but not in developed countries. Fixed impact of the study shows the significant negative effect of terrorism on business disappointment in 170 countries that was taken as a sample. It is also observed that on the day of the event stock market index drop significantly and the same response was observed after the event [23]. 2.3 Hypotheses of the Study

According to the EMH, security price is the true estimation of the market if it is determined in efficient market environment. Efficient market hypotheses have three versions i.e. weak, semi-strong and strong. Semi strong informational efficiency hypothesis was checked by different researcher through event study method. It indicates the informational efficiency security prices consider all publicly available information. Stock prices absorb new information quickly. This form, if prevail in the market, reject the fundamental analysis. Strong form efficiency rarely exist in the market. As, terrorism activity is an uncertain event so, researchers tested the hypothesis of semi strong efficiency due to terrorist attacks in stock market by using event study method. Therefore, the following research hypotheses are proposed based upon existing literature: H1: There is a negative effect of local and global terrorist events on KMI-30 index of PSX H2: There is a negative effect of local and global terrorist events on KMI-30 index of PSX. H3: There is a difference in reaction of KSE-30 index and KMI-30 index for terrorist events.

3. RESEARCH METHOD

This study used quantitative research approach to collect data for a period of 8 years from January 2010 to December 2017. During the selected time period world has experienced worst terrorist events including Pakistan may be as an outcome of war against terrorism. Numerous terrorist events were documented during this period at almost all the parts of Pakistan. However, some selected events were taken for this study based upon its magnitude and extent of loss and unfortunate consequences in terms of death, injuries and other damages. Moreover, stock market performance was assessed based upon two indices of Pakistan Stock Exchange i.e. KSE- 30 Index and KMI-30 Index for the period of eight years from January 2010 to December 2017. Literature also suggested to adopt longitudinal data approach for such types of studies [24]. An event estimation approach was used by dividing into Pre-Event Window; Event Window and Post-Event Window presented in Figure 1.

Figure 1 Event Study Windows

Event Post-event Estimation

The sample size is consisted on 2447 observations of KMI-30 and 2447 daily stock prices of KSE-30 for the entire period that is obtained from the official website of Pakistan Stock Exchange. Terrorist events were selected from South Asian Terrorism Portal (SATP) and also verified from different newspapers i.e. Dawn, Express Tribune, Daily times and BBC. The events selected for this study are placed in Table 1 along with date of event; name of event; level and source of information. An unfortunate event with 50 or more causalities/deaths in addition to injuries and other losses were selected for the study to notice its influence on KSE-30 and KMI-30. A total of 12 events including 2 global/international events were selected for the study that occurred during the sample period of eight years from January 2010 to December, 2019 that is listed in Table 1.

Table 1 Listed of Major Terrorist Events (2010 to 2019) # Date of Event Events Level Source

1 July 5, 2010 Suicide Attack in Yaka Ghand Local Daily times 2 Aug 9, 2011 Attack on Jamia Masjid of Jamurd Local Express/Tribune 3 Jan 10, 2013 Attack on Shias in Quetta Local BBC 4 July 26, 2013 Twin suicide assaults at Parachinar Local Dawn 5 Dec 16, 2014 Assault on Army Public School Local Dawn 6 Jan 30, 2015 Bomb blast at Imambargah in Shikarpur Local Express/Tribune 7 Nov 13, 2015 Paris, France bombing (Bar, Restaurant, theater) Global BBC 8 March 22, Self-destruction bombarding in Belgium at Global BBC 2016 Brussels 9 Aug 8, 2016 Suicide bombarding at Quetta’s Civil Hospital Local Dawn 10 Oct 24, 2016 Attack on New Sariab Police Training College Local Express/Tribunes 11 Feb 16, 2017 Attack on Shrine of Lal Shahbaz in Sehwan sharif Local BBC 12 July 13, 2018 Attack on Political rally of the Balochistan Awami Local Express/Tribune Party

To examine the variance between the means of market unusual returns in the pre and post event window statistical t- test is used. Event window was divided into three parts i.e. before happening of the event window (pre-event), event day and after happening of the event window (post-event), formula of statistical t-test is given below:

In case of significant t-statistic value it is inferred that market is unsystematic because it does not suck up the noisy information and in case of insignificant t-statistic value it is inferred that market is systematic because it suck up the uncertain information immediately and Efficient Market Hypotheses (EMH) is proved here true. Three event windows are taken into account to determine how much time a market takes to mop up noisy information. It is a statistical technique of evaluation to degree the effect of an economic or corporate event on the security prices. Different events have been analyzed e.g. initial public offering, merger and acquisition and announcement of dividends and earnings. It is assumed that markets are well organized that absorb the new information immediately. [25] Introduced the idea of event study methodology. In event study, three event 1067 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 windows are placed i.e. pre-event, event day and post-event window. Event study is the best method to explore the effect of different events on the stock market performance [26]. So, event study is the proficient way to investigate the effect of different events on the stock market working. Therefore, present study considers event study to investigate terrorist activities impact on KSE-30 index and KMI-30 index. Mean adjusted returns model is utilized to examine the pre and post event impact of different terrorist episodes on both indexes.

4.0 RESULTS

One way analysis of variance (ANOVA) has been run to check the change in stock exchange index as a result of twelve terrorist attacks. Post hoc tukey has been used to investigate where actually the difference lies. Table 2 Terrorist Events and Performance of KMI-30 Index Event No. Pre and Post Mean Difference Significance F-value Event 1 Pre-event -572.83750* .001 23.162 Post-Event -708.76250* .000 2 Pre-event 379.58000 .063 6.526 Post-Event -117.06750 .704 3 Pre-event 216.09750 .577 .865 Post-Event 256.20500 .470 4 Pre-event 286.65000 .464 13.328 Post-Event 1151.58250* .002 5 Pre-event 1503.02250* .000 44.863 Post-Event 120.05000 .780 6 Pre-event -424.87000 .190 7.913 Post-Event -883.30250* .008 7 Pre-event 280.30750 .541 6.497 Post-Event 901.95000* .016 8 Pre-event 230.58750 .601 6.214 Post-Event -567.30000 .087 9 Pre-event -314.27750 .315 7.046 Post-Event -758.01500* .012 10 Pre-event 1258.78500 .311 1.231 Post-Event 762.16000 .628 11 Pre-event 1196.67000 .060 6.990 Post-Event 1614.30750* .014 12 Pre-event -203.30750 .942 7.620 Post-Event -2175.58750* .016 Table 2 indicates the outcomes of terrorist events on KMI-30 Index for the selected events. It reveals the performance in Pre-Event; Event and Post-Event windows (I – J). Suicide attack in Yaka Ghand reflects a statistically significant difference in KMI-30 index of pre-event and post-event (p=0.001) and ; stock market is gaining significantly with 573 points along with difference in mean for post event window shows significant gain in KMI-30 index of 709 point. It reflects that post event market gain is greater than pre-event so, market recover quickly in post event period. Attack on Jamia Masjid of Jamurd) has insignificant difference in KMI-30 index as evident from pre-event and post event windows. It reveals an insignificant decline in KMI-30 of 380 points and 1068 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 insignificant gain of 117 points in KMI-30 after happening of the event. Attack on Shias in Quetta indicates an insignificant difference in KMI-30 index of pre-event and post event windows. There is decline on event day and after happening of the event with 216 and 256 points respectively. Assault on Army Public School has significant difference in KMI-30 index of pre and post events but has an insignificant coefficient. It points out to significant decline in KMI-30 returns with 1503 points and Pre-Event to post event returns insignificant fall in KMI-30 returns with 120 points. Bomb blast at Imambargah in Shikarpur presents an insignificant difference in KMI-30 index for pre and post events (p= .190) but has a significant effect between the post event and pre event (p=.008). It also indicates insignificant gain of 424 point in KMI-30 index while between Pre-Event to post event significant gain of 883 points in KMI-30 returns. Bombing at Paris, France has insignificant difference in KMI-30 index of pre-event and post events but has a significant effect between the post event and pre event. It indicates insignificant decline of 280 points while between Pre-Event to post event significant decline of 902 points is reported in KMI-30 index returns.

Self-destruction bombarding in Belgium has insignificant difference in KMI-30 index of pre and post events. The mean difference also reflects insignificant fall in KMI-30 returns while difference in mean between Pre-Event to post event indicates insignificant gain in KMI-30 returns with 567 points. Suicide bombarding at Quetta’s Civil Hospital shows insignificant gain of 314 points while Pre-Event to post event indicates significant gain of 758 points in KMI-3 returns. Attack on New Sariab Police Training College reveals insignificant fall throughout whole window indicates unsystematic market that can suck up noisy information quickly. Attack on Shrine of Lal Shahbaz in Sehwan sharif presents the difference in mean between Pre-Event to event indicating insignificant decline of 1197 points along with significant decline of 1614 points in KMI-30 returns. Attack on the political rally of the Balochistan Awami Party presents the mean difference between Pre-Event and event shows insignificant gain in KMI-30 returns while Pre-Event to post event indicates significant gain in KMI-30 returns. Table 3 Terrorist Events and Performance of KSE-30 Index Event No. Pre and Post Event Mean Difference Sig. F- Statistic 1 Pre-event 371.30750* .005 18.879 Post-Event 520.13000* .001 2 Pre-event 287.01000* .031 5.102 Post-Event 78.42750 .686 3 Pre-event 125.52000 .506 1.385 Post-Event 175.16250 .289 4 Pre-event 324.78750* .036 22.330 Post-Event 722.82500* .000 5 Pre-event 697.99750* .000 43.351 Post-Event -53.96000 .824 6 Pre-event -97.38750 .522 1.089 Post-Event 22.61500 .963 7 Pre-event 118.40500 .403 6.113 Post-Event 303.53500* .018 8 Pre-event 185.95750* .023 6.175 Post-Event 56.62602 .055 9 Pre-event 162.83750 .057 5.253 Post-Event -11.13500 .981 10 Pre-event 280.43750 .495 .693 1069 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075

Post-Event 138.02500 .834 11 Pre-event 267.22750 .116 4.777 Post-Event 352.10000* .038 12 Pre-event -355.18250 .183 13.026 Post-Event -926.68250* .002

Table 3 highlights the outcomes of terrorist events on KSE-30 Index for the selected events. It reveals the performance in Pre-Event; Event and Post-Event windows (I – J). Suicide attack in Yaka Ghand indicates that there is an overall significant difference between all three categories (F value=18.879). The results shows that event Suicide Attack in Yaka Ghand; Twin suicide assaults at Parachinar and Self-destruction bombarding in Belgium at Brussels indicate a statistically significant difference in KSE-30 index of pre and post event (p=0.005, 0.036, & 0.023), as well as between the post event and pre event (p=0.001, .000, & 0.055) which means a highly significant gain in KSE-30 index before and after happening of events. Moreover, Attack on Jamia Masjid of Jamurd ; Assault on Army Public School and Suicide bombarding at Quetta’s Civil Hospital indicate a statistically significant difference in KSE-30 index of pre and post event but insignificant difference between the post event and pre event which means that there is a highly significant gain in KSE-30 index before. However, Paris, France bombing (Bar, Restaurant, theater); Attack on Shrine of Lal Shahbaz in Sehwan sharif and Attack on Political rally of the Balochistan Awami Party reflects a statistically insignificant difference in KSE-30 index of pre and post event, but significant difference between the post event and pre event. Lastly, Attack on Shias in Quetta; Bomb blast at Imambargah in Shikarpur and Attack on New Sariab Police Training College depicts a statistically insignificant difference in KSE-30 index of pre and post event, as well as between the post event and pre event which mean that these event are not effecting KSE-30 market index.

Table 3 Impact of Terrorist Events on KMI-30 Index & KSE-30 Index

Event KMI 30 Constant & Pre-event & Post-event & R square No. KSE 30 (Sig-value) (Sig-value) (Sig-value) 1 KMI-30 15204.76 -572.838 (P=0.01) 135.925 (P=.250) .837 KSE-30 (P=.000) -371.307 (P=.01) 148.823 (P=.122) .808 9941.183 (P=.000) 2 KMI-30 19637.35 379.580 (P=.027) 496.647 (P=.007) .592 KSE-30 (P=.000) 287.010 (P=.013) 208.582 (P=.051) .531 10414.88 (P=.000) 3 KMI-30 28506.777 216.098 (P=.329) -40.108 (P=.582) .161 KSE-30 (P=.000) 125.520 (P=.277) -49.643 (P=.658) .235 13467.30 (P=.000) 4 KMI-30 40901.695 286.650 (P=.248) -864.933 (P=.005) .748 KSE-30 (P=.000) 324.788 (P=.015) -398.037 (P=.005) .832 18208.732 (P=.000) 5 KMI-30 49339.670 1503.022 (P=.000) 1382.992 (P=.000) .909 1070 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075

KSE-30 (P=.000) 697.997 (P=.000) 751.957 (P=.000) .906 19920.97 (P=.000) 6 KMI-30 54489.21 -424.870 (P=.088) 458.433 (P=.069) .637 KSE-30 (P=.000) -97.387 (P=.289) -120.003 (P=.198) .195 22473.25 (P=.000) 7 KMI-30 56829.440 280.308 (P=.302) -621.642 (P=.038) .591 KSE-30 (P=.000) 118.405 (P=.209) -185.130 (P=.063) .576 20128.817 (P=.000) 8 KMI-30 57350.71 230.587 (P=.348) 797.888 (P=.008) .580 KSE-30 (P=.000) 185.957 (P=.009) 31.600 (P=.590) .578 19139.90 (P=.000) 9 KMI-30 69738.490 443.738 (P=.057) -314.277 (P=.156) .610 KSE-30 (P=.000) 173.973 (P=.018) 162.838 (P=.024) .539 22612.175 (P=.000) 10 KMI-30 67624.545 1258.785 (P=.154) 496.65 (P=.554) .215 KSE-30 (P=.000) 280.437 (P=.269) 142.413 (P=.565) .133 22139.458 (P=.000) 11 KMI-30 84465.60 1196.670 (P=.026) -417.637 (P=.376) .608 KSE-30 (P=.000) 267.228 (P=.051) -84.872 (P=.493) .515 26620.68 (P=.000) 12 KMI-30 66892.89 -203.308 (P=.749) 1972.280 (P=.011) .629 KSE-30 (P=.000) -355.182 (P=.000) 571.500 (P=.000) .743 19811.35 (P=.000)

Table 4 shows regression coefficients for influence of selected events on KMI-30 and KSE-30 index that is self-explanatory. Results indicate that Suicide Attack in Yaka Ghand, Attack on Jamia Masjid of Jamurd, Assault on Army Public School, Suicide bombarding at Quetta’s Civil Hospital and Attack on Shrine of Lal Shahbaz in Sehwan sharif are significantly affect the both stock market indices. However, pre-event window shows an insignificant reaction on four events (evident from Table 4) as per p-value of these events. KMI-30 index shows insignificant reaction to remaining three events i.e. Twin suicide assaults at Parachinar; Self- destruction bombarding in Belgium and Attack on the political rally of the Balochistan Awami Party but at the same time KSE-30 shows insignificant relationship with these event in pre-event windows. Findings for post event reveals that mostly events are significantly affecting the both indexes except specific events i.e. Suicide Attack in Yaka Ghand; Attack on Shias in Quetta; Paris, France bombing and Attack on New Sariab Police Training College and Attack on Shrine of Lal Shahbaz which has insignificant effect on both indexes. Additionally, both indexes have highly significant effect of Army public school attack which means markets are 1071 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 inefficient and cannot recover quickly from any uncertain event. KMI-30 index is more sensitive to terrorist activities. More fluctuation in mean is found in KMI-30 index. Post event value of both indexes is lower than pre event indices. Global terrorist events like, Paris, France bombing has significant impact on both market indexes as significance value is less than 0.05. Suicide bombarding in Belgium has significant impact on both market indices. Findings of the study shows that Suicide attack on political offices, Attack on the Jamia masjid Madina, Twin suicide assaults at Parachinar, Assault on Army Public School, Paris, France Self-destruction bombarding in Belgium, Suicide bombarding at Quetta’s Civil Hospital, Attack on Shrine of Lal Shahbaz and Attack on the political rally of the Balochistan Awami Party has significant effect on both market indices. The findings of the study are consistent with the previous literature as is evident that terrorist activities has an adverse effect on stock market performance [27]. The findings of the current study also shows that attack on Shias at Alamdar road in Quetta, Bomb blast at Karbala Maula Imambargah and Attack on the New Sariab Police Training College has insignificant impact on both markets. These findings are also consistent with the previous literature as [28] was found that there is no distinction in terrorist events effect between little and large countries and it was reported that there is no effect of terrorist activity on Pakistan Stock exchange.

5. DISCUSSION

Results for Suicide Attack in Yaka Ghand shows the highly significant impact on both market indices and found both market indices are unsystematic and does not absorb the noisy information quickly. On 10 January 2010 Attack on Shias at Alamdar road in Quetta in which 81 died and 120 injured has insignificant effect on KMI-30 and KSE-30 returns. Markets are efficient during event windows of this terrorist activity. Insignificant decline between Pre-Event to post event window is found in both market indexes returns. All null hypotheses fail to reject that states there is no association between terrorist events and stock markets of Pakistan (KMI-30 and KSE-30). On 26 July 2013, Twin Suicide Assaults at Parachinar has significant impact on KMI-30 and highly significant impact on KSE-30 index; On 16 December 2014, assault on Army Public School in which 148 died and 121 injured has highly significant impact on KMI-30 and KSE-30 index. Bomb blast at Karbala Maula Imambargah in Shikarpur on 30 January 2015, in which 61 causalities and 50 injuries were reported, has significant impact on KMI-30 and insignificant impact on KSE-30 with .377 significance value. KMI-30 is more reactionary index on the happening of any terrorist or uncertain activity. The deadliest terrorist event of Paris, France bombing on 13 November 2015 which taken 137 lives and left 413 injured has significant impact on KMI- 30 and KSE-30 returns. Significant decline is reported from Pre-Event to post event in both market indexes. Suicide bombarding in Belgium at Brussels has significant impact on KMI-30 and KSE-30 returns. Mean fluctu between Pre-Event to post event has insignificant gain in KMI-30 returns and insignificant decline in KSE-30 returns.

Suicide bombarding at Quetta’s Civil Hospital on 8 August 2016 has significant impact on KMI-30 and KSE-30 returns. More fluctuation in KMI-30 returns is reflected due to this event as compare to KSE-30 index difference in mean between Pre-Event to post event has significant gain in KMI-30 returns indicating market is inefficient and does not react to noisy information. Attack on the New Sariab Police Training College on 24 October 2016 in which 60 causalities and 165 injuries were observed has insignificant impact on both market returns. Market is efficient during this event window and quickly recovered from uncertain environment. On 16 February 2017, attack on Shrine of Lal Shahbaz in Sehwan sharif which experienced 72 causalities and 250 injuries has significant impact on KMI-30 and KSE-30 returns. More fluctuation in KMI-30 returns is explained by this attack. On 13 July 2018, Attack on the political rally of the Balochistan Awami Party which observed 128 1072 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 causalities and 200 injuries has significant effect on KMI-30 and KSE-30 returns. Results are in line with literature as trading volume and stock returns has significant relationship and stock returns decreased in the post event; influence of local and global events on KSE-100 Index; different terrorist assaults have distinct consequence on Karachi Stock Exchange; It was inferred that only the events in which any political figure involves and create viciousness within the country can make changes in Karachi Stock Exchange; it is evident that volatility in the market is just for short time span and with 15 days market occupy the noisy information and significant negative impact is observed on KSE-100 index [29].

5.1 Conclusion Stock markets are crucial for the growth and development of any country and performance of stock markets is affected by many economic and non-economic factors i.e. political events, foreign direct investment, inflation, natural disasters and terrorist activities. The study examined effect of terrorist events on KMI-30 Index and KSE-30 Index by choosing twelve major terrorist events (ten local events and two international events) during the period of 2010 to 2019. Data for KMI-30 and KSE-30 is acquired from the official website of Karachi stock exchange from 2010 to 2019. Three windows were drafted i.e. Pre-Event, Event and Post-Event for every terrorism event. SPSS software was used to apply selected statistical tools i.e. ANOVA, Post-Hoc Tukey test and regression analysis. Findings indicate that Suicide Attack in Yaka Ghand shows the highly significant impact on both market indexes; Attack on Shias at Alamdar road in Quetta has insignificant effect on KMI-30 and KSE-30 returns. Markets are efficient during event windows of this terrorist activity. Insignificant decline between Pre- Event to post event window is found in both market indexes returns.

Twin Suicide Assaults at Parachinar has significant impact on KMI-30 and highly significant impact on KSE-30 index; Assault on Army Public School has highly significant impact on KMI-30 and KSE-30 index. Bomb blast at Karbala Maula Imambargah in Shikarpur has significant impact on KMI-30 and insignificant impact on KSE-30 with .377 significance value. KMI-30 is more reactionary index on the happening of any terrorist or uncertain activity; Event of Paris, France bombing has significant impact on KMI-30 and KSE-30 returns. Significant decline is reported from Pre-Event to post event in both market indexes. Suicide bombarding in Belgium at Brussels has significant impact on KMI-30 and KSE-30 returns. Mean fluctuations between Pre- Event to post event has insignificant gain in KMI-30 returns and insignificant decline in KSE-30 returns. Suicide bombarding at Quetta’s Civil Hospital has significant impact on KMI-30 and KSE-30 returns. More fluctuation in KMI-30 returns is reflected due to this event as compare to KSE-30 index difference in mean between Pre-Event to post event has significant gain in KMI-30 returns which means market is inefficient and does not react to noisy information. All alternate hypotheses are accepted here which state there is an association between terrorist attack and stock markets of Pakistan (KMI-30 and KSE-30). Attack on the New Sariab Police Training College has insignificant impact on both market returns. Market is efficient during this event window and quickly recovered from uncertain environment. Attack on Shrine of Lal Shahbaz in Sehwan sharif town of Sehwan District has significant impact on KMI-30 and KSE-30 returns. More fluctuation in KMI-30 returns is explained by this attack and Attack on the political rally of the Balochistan Awami Party has significant Impact on KMI-30 and KSE-30 returns.

5.2 Practical and Theoretical Implications This study assists the investors and stakeholders in analyzing the reaction of both markets on happening of terrorist event. This study also explores the difference in reaction of both markets KMI-30 and KSE-30 index on the occurrence of same terrorist incident. Investors will be able to form educated decisions in uncertain 1073 ISSN: 2005-4289 IJDRBC Copyright ⓒ2021 SERSC International Journal of Disaster Recovery and Business Continuity Vol. 12, No. 1, (2021), pp. 1063-1075 environment. Government agencies and policy maker will be able to forecast the market on the happening of any such type of activity after observing the magnitude of different terrorist episodes. Government can take measures to overcome uncertainty from markets in case of any such type of emergency to protect the investors because they are crucial for the growth and development of any country. Efficient Market Hypotheses (EMH) state that if t- statistic is significant then market is unsystematic and does not mop up with noisy information. In case of insignificant t-statistic value shows that market is systematic and can absorb the noisy information immediately. All events have significant impact on KMI-30 and KSE-30 except 3rd, 10th and 6th event in KSE-30 returns. Which means results indicates that both markets KMI-30 and KSE-30 are unsystematic and does not suck up noisy information immediately. In present study, data for the period 2010 to 2019 was taken as sample period for further research different sample period can be used. Different research methods can be used in future on KMI-30 and KSE-30 such as Arch and Garch Model, Market Model and different statistical techniques can be used. Future research can focus on KMI-30 comparison with different Islamic markets by taking different terrorist activities. 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