Stock index manipulation around election announcements: evidence from Pakistan stock exchange

  • Authors

    • Shahbaz Khan School of Finance, Zhongnan University of Economics and Law,Wuhan
    • Razzi Abbas Jafri National Bank of Pakistan
    • Nida Baig College of Public Administration, Huazhong University of Science and Technology,Wuhan
    • Muhammad Shaique School of Accounting, Zhongnan University of Economics and Law,Wuhan
    • Muhammad Usman School of Finance, Zhongnan University of Economics and Law,Wuhan
    2017-07-01
    https://doi.org/10.14419/ijaes.v5i2.7792
  • Political Elections, Pakistan Stock Exchange, Stock Returns, Market Efficiency, Event Study.

  • Abstract

    The purpose of this study is to find out the impact of political general elections of Pakistan on KSE-100 index. We employed Event study methodology on closing prices of KSE-100 index over the time period January, 1998 to May, 2013. During our sample period, 3 events of political general Elections occurred i.e., Event1 in 2002, Event2 in 2008, and recently Event3 in 2013. We construct an Event window of 11 days consisting of 5 pre-event days, 1 on-event day, and 5 post-event days. Results of this study show that Events 1 -and 2 put significant negative impact on stock returns, while Event3 demonstrates a significant positive impact on stock returns. This study also revealed the pre -and post-event comparison for all of the three events and, suggested that as soon as the political situation of the country changes, behavior of investors towards political general election also changes. Manipulation in stock index has always been remained an inconclusive phenomenon for investors and policy makers. So, further evidence on an individual country level might suggest fruitful guidelines to both investors and policy makers.

    Author Biography

    • Shahbaz Khan, School of Finance, Zhongnan University of Economics and Law,Wuhan
      Ph.D Candidate, School of Finance

  • References

    1. [1] Alesina, A., Spolaore, E., & Wacziarg, R. (1997). Economic integration and political disintegration (No.w6163). National Bureau of Economic Research. https://doi.org/10.3386/w6163.

      [2] Election polls, free trade, and the stock market: evidence from theCanadian general election (No. w3073). National Bureau of Economic Research.

      [3] Fama, E. F. (1965). The behavior of stock-market prices. The journal of Business, 38(1), 34-105. https://doi.org/10.1086/294743.

      [4] Fong, W. M., & Koh, S. K. (2002). The political economy of volatility dynamics in the Hong Kong stock market. Asia-Pacific financial markets, 9(3), 259-282. https://doi.org/10.1023/A:1024133632104.

      [5] Floros, C. (2008). The influence of the political elections on the course of the Athens Stock Exchange 1996-2002. Managerial Finance, 34(7), 479-488. https://doi.org/10.1108/03074350810874433.

      [6] Hibbs, D. A. (1977). Political parties and macroeconomic policy. American political science review, 71(04), 1467-1487. https://doi.org/10.2307/1961490.

      [7] Huber, J., & Kirchler, M. (2013). Corporate campaign contributions and abnormal stock returns after presidential elections. Public Choice, 156(1-2), 285-307. https://doi.org/10.1007/s11127-011-9898-4.

      [8] Jones, S., T., & Banning, K. (2009). US elections and monthly stock market returns. Journal of Economics and Finance, 33(3), 273. https://doi.org/10.1007/s12197-008-9059-x.

      [9] Khan, S., Baig, N., Usman, M., Shaique, M., & Shaikh, R. Stock Market Dynamics in Pakistan: What Do Political Events and Budget Announcements Disclose?. Research Journal of Finance and Accounting 8(10)-113-123.

      [10] Leblang, D., & Mukherjee, B. (2005). Government partisanship, elections, and the stock market Examining American and British stock returns, 1930–2000. American Journal of Political Science, 49(4), 780-802. https://doi.org/10.1111/j.1540-5907.2005.00155.x.

      [11] MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of economic literature, 35(1), 13-39.

      [12] Mishkin, F. S. (1982). Monetary Policy and Shortâ€term Interest Rates: An Efficient Marketsâ€Rational Expectations Approach. The Journal of Finance, 37(1), 63-72. https://doi.org/10.1111/j.1540-6261.1982.tb01095.x.

      [13] Manning, D. N. (1989). The effect of political uncertainty on the stock market: the case of British Telecom. Applied Economics, 21(7), 881-890. https://doi.org/10.1080/758518229.

      [14] Nippani, S., & Arize, A. C. (2005). US presidential election impact on Canadian and Mexican stock markets. Journal of Economics and Finance, 29 (2), 271-279. https://doi.org/10.1007/BF02761558.

      [15] Pepinsky, T. (2007). Autocracy, elections, and Fiscal policy: Evidence from Malaysia. Studies in Comparative International Development, 42(1-2), 136-163. https://doi.org/10.1007/s12116-007-9006-4.

      [16] Steeley, J. M. (2003). Making Political Capital: The behaviour of the UK capital markets during Election'97. Applied financial economics, 13(2), 85-95. https://doi.org/10.1080/09603100210100873.

      [17] Shum, P. M. (1996). Stock market response to political uncertainty: evidence from the 1992 constitutional referendum. The Canadian Journal of Economics/Revue canadienne d'Economique, 29, S213-S218. https://doi.org/10.2307/135990.

  • Downloads

  • How to Cite

    Khan, S., Jafri, R. A., Baig, N., Shaique, M., & Usman, M. (2017). Stock index manipulation around election announcements: evidence from Pakistan stock exchange. International Journal of Accounting and Economics Studies, 5(2), 87-91. https://doi.org/10.14419/ijaes.v5i2.7792

    Received date: 2017-05-17

    Accepted date: 2017-06-17

    Published date: 2017-07-01