The Nexus between Political & Institutional Corruption Events with the Stock Market: A Study of Pakistan

Abstract

Arrival of new information and dissemination of that information in asset prices is the determining force of asset returns. This paper studies the nexus between political and institutional corruption events with daily stock market returns by using Mega Corruption cases that were reported between January 2011 to February 2019. Therefore, to study how stock market returns react to these selected events, a mean adjusted model has been applied and a before and after, two and five day event window has been constructed. The results show that political and institutional corruption events have negative and significant impact on stock market returns. Hence, the paper concludes that investors and portfolio managers should be prudent towards their investment decisions during times of uncertainty.