Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach
Abstract Political instability has increased drastically in Pakistan during the last few decades. This may intensify the fear of investors and eventually affect investment decisions. Therefore, the stock market’s reaction to political stability must be explored and appropriate policy measures should...
Saved in:
| Main Authors: | , , , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
SpringerOpen
2024-11-01
|
| Series: | Financial Innovation |
| Subjects: | |
| Online Access: | https://doi.org/10.1186/s40854-024-00658-8 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1850179559108902912 |
|---|---|
| author | Wajid Alim Naqib Ullah Khan Vince Wanhao Zhang Helen Huifen Cai Alexey Mikhaylov Qiong Yuan |
| author_facet | Wajid Alim Naqib Ullah Khan Vince Wanhao Zhang Helen Huifen Cai Alexey Mikhaylov Qiong Yuan |
| author_sort | Wajid Alim |
| collection | DOAJ |
| description | Abstract Political instability has increased drastically in Pakistan during the last few decades. This may intensify the fear of investors and eventually affect investment decisions. Therefore, the stock market’s reaction to political stability must be explored and appropriate policy measures should be prescribed. This paper examines the effect of political stability on stock market returns and volatility using time series data from Pakistan for the period from January 02, 2004, to May 31, 2018. The study uses the Generalized Autoregressive Conditional Heteroskedastic (GARCH) and Exponential Generalized Autoregressive Conditional Heteroskedastic (EGARCH) models to achieve the main objectives. The findings of the GARCH and EGARCH models confirm that political stability has a positive and significant influence on both stock market returns and volatility in Pakistan. In addition, the EGARCH findings indicate that negative shock (political instability) creates more volatility in the stock market than positive shock (political stability). The results of this study reveal that financial market investors are affected more by political instability. In conclusion, this study suggests that political stability is an essential factor affecting financial market volatility, and it leads to stable financial markets. It also emphasizes that political instability needs to be resolved to achieve stable financial markets. |
| format | Article |
| id | doaj-art-7d4682ca91ca44d383679b9e15cdda5c |
| institution | OA Journals |
| issn | 2199-4730 |
| language | English |
| publishDate | 2024-11-01 |
| publisher | SpringerOpen |
| record_format | Article |
| series | Financial Innovation |
| spelling | doaj-art-7d4682ca91ca44d383679b9e15cdda5c2025-08-20T02:18:28ZengSpringerOpenFinancial Innovation2199-47302024-11-0110111710.1186/s40854-024-00658-8Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approachWajid Alim0Naqib Ullah Khan1Vince Wanhao Zhang2Helen Huifen Cai3Alexey Mikhaylov4Qiong Yuan5Lahore School of Accountancy and Finance, University of LahoreSchool of Public Administration, Central South UniversityUniversity College LondonMiddlesex Business School, Middlesex UniversityDepartment of Financial Technologies, Financial University Under the Government of the Russian FederationMiddlesex Business School, Middlesex UniversityAbstract Political instability has increased drastically in Pakistan during the last few decades. This may intensify the fear of investors and eventually affect investment decisions. Therefore, the stock market’s reaction to political stability must be explored and appropriate policy measures should be prescribed. This paper examines the effect of political stability on stock market returns and volatility using time series data from Pakistan for the period from January 02, 2004, to May 31, 2018. The study uses the Generalized Autoregressive Conditional Heteroskedastic (GARCH) and Exponential Generalized Autoregressive Conditional Heteroskedastic (EGARCH) models to achieve the main objectives. The findings of the GARCH and EGARCH models confirm that political stability has a positive and significant influence on both stock market returns and volatility in Pakistan. In addition, the EGARCH findings indicate that negative shock (political instability) creates more volatility in the stock market than positive shock (political stability). The results of this study reveal that financial market investors are affected more by political instability. In conclusion, this study suggests that political stability is an essential factor affecting financial market volatility, and it leads to stable financial markets. It also emphasizes that political instability needs to be resolved to achieve stable financial markets.https://doi.org/10.1186/s40854-024-00658-8GARCHPolitical stabilityStock returnsVolatilityPakistan |
| spellingShingle | Wajid Alim Naqib Ullah Khan Vince Wanhao Zhang Helen Huifen Cai Alexey Mikhaylov Qiong Yuan Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach Financial Innovation GARCH Political stability Stock returns Volatility Pakistan |
| title | Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach |
| title_full | Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach |
| title_fullStr | Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach |
| title_full_unstemmed | Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach |
| title_short | Influence of political stability on the stock market returns and volatility: GARCH and EGARCH approach |
| title_sort | influence of political stability on the stock market returns and volatility garch and egarch approach |
| topic | GARCH Political stability Stock returns Volatility Pakistan |
| url | https://doi.org/10.1186/s40854-024-00658-8 |
| work_keys_str_mv | AT wajidalim influenceofpoliticalstabilityonthestockmarketreturnsandvolatilitygarchandegarchapproach AT naqibullahkhan influenceofpoliticalstabilityonthestockmarketreturnsandvolatilitygarchandegarchapproach AT vincewanhaozhang influenceofpoliticalstabilityonthestockmarketreturnsandvolatilitygarchandegarchapproach AT helenhuifencai influenceofpoliticalstabilityonthestockmarketreturnsandvolatilitygarchandegarchapproach AT alexeymikhaylov influenceofpoliticalstabilityonthestockmarketreturnsandvolatilitygarchandegarchapproach AT qiongyuan influenceofpoliticalstabilityonthestockmarketreturnsandvolatilitygarchandegarchapproach |