Stock Market Volatility and Terrorism: New Evidence from the Markov Switching Model

Faheem Aslam, Hyoung Goo Kang, Khurrum Shahzad Mughal, Tahir Mumtaz Awan, Yasir Tariq Mohmand

Research output: Contribution to journalArticlepeer-review


Terrorism in Pakistan poses a significant risk towards the lives of people by violent destruction and physical damage. In addition to human loss, such catastrophic activities also affect the financial markets. The purpose of this study is to examine the impact of terrorism on the volatility of the Pakistan stock market. The financial impact of 339 terrorist attacks for a period of 18 years (2000-2018) is estimated w.r.t. target type, days of the week, and surprise factor. Three important macroeconomic variables namely exchange rate, gold, and oil were also considered. The findings of the EGARCH (1, 1) model revealed that the terrorist attacks targeting the security forces and commercial facilities significantly increased the stock market volatility. The significant impact of terrorist attacks on Monday, Tuesday, and Thursday confirms the overreaction of investors to terrorist news. Furthermore, the results confirmed the negative linkage between the surprise factor and stock market returns. The findings of this study have significant implications for investors and policymakers.

Original languageEnglish
Pages (from-to)263-284
Number of pages22
JournalPeace Economics, Peace Science and Public Policy
Issue number2
StatePublished - 2021 May 1
Externally publishedYes


  • Pakistan stock exchange
  • days of the week effect
  • terrorist events


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