Acts Of Terrorism And Their Impacts On Stock Index Returns And Volatility: The Cases Of The Karachi And Tehran Stock Exchanges

Abstract

Terrorist attacks throughout the world have disrupted the flow of financial capital between nations and affected incomes, company profits and stock prices.  This paper uses a GARCH(1,1) model to determine how these attacks have affected two specific stock markets: one in Pakistan and the other in Iran.  It was found that significant, but different, stock index return shifts and changes in volatility occurred in the two markets.  These effects on stock returns have important implications for the economies involved and provide information about investor reaction to terrorism.