Stock Market Reaction to Good and Bad Political News
Abstract
The purpose of this study is to analyse the consequence of political news on stock market returns and hence its volatility. For this purpose we split the political news into two categories (good and bad news). We used univariate asymmetric GARCH model, to gauge the impact of political news on returns and volatility. Our results show that good news have positive impact on the returns of the KSE100 index and also decreased the volatility. On the other hand, bad political news has negative influence on the returns (decrease the returns) and increase the volatility (positive effect). Further, our results also confirm that bad news has stronger effect (almost double) on the volatility than good news. Most of the sectors are also affected by the good and bad news in the same way as KSE100 index. We also find that the results of a few sectors (oil and gas, financial, health care) are not statistically significantly in respond to good and bad political news, indicating that this type of news does not affect the returns or volatility. Our results show that the sectors which respond more towards good news has lower beta, suggesting variance moves quickly through the time.Submission of an article implies that the work described has not been published previously (except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, will not be published elsewhere in the same form, in English or in any other language, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.
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