On The Relationship Between Political Stability And Stock Market Performance

The study focused on assessing the impact of Pakistan and India's performance on the ASIAN stock market and political stability.Gross fixed investment capital is considered as independent variables for economic growth calculation Inflation,per capita GDP.Terrorist attacks,electoral attacks,and political systems are considered null variables in the calculation of global stability.Dependent factors require capitalization of the stock market.The techniques used in the analysis were both qualitative and quantitative.The empiric study was conducted using time series data between 1960 and 2018.Several research studies focused on analyzing the relationship between political stability,ma croeconomic factors,and the stock or asset returns of individual countries.In this study,however,we are trying to explore Asian economies through nations such as Pakistan and India.In this study,the asymmetric consequences of political stability and market performance in the ASIAN countries will be applied to existing literature.Thus,the research question is the relationship between market capitalization and political stability in Pakistan and India? The research will,therefore,be conducted with the following objectives.The objective of the analysis is to examine the extent to which political stability contributes to the success of the stock markets in Pakistan and India.Investigating the relationship between Pakist an and India stock markets on a global scale,and proposing an action plan for sound stock market investment decisions,evaluating political developments has had an impact on Pakistan and India's international competitiveness and social growth.To investigate the impact of extreme political events on Pakistan and the Indian economy,analyze the role of political regimes in the performance of the stock market.The main objective of this study is to find out about the relationship between political stability,such as "terrorism activities,election activities and political regimes," and the market outcomes of Pakistan and India.In the same way,we also provided a detailed study of global shocks(political changes).Previous literature discusses in depth the relationship between political stability and market capitalisation.Mostly,however,the effects of all kinds of legislative changes are lacking.Such changes,directly and indirectly,influence the relationship between political uncertainty and market capitalization.This study,therefore,makes an important contribution to the current literature of Pakistan and India to capture the impact of domestic and international changes in the presence of other control variables,such as the relationship between political and market outcomes.This study not only measures the impact of political events but also identifies the time taken by Pakistan and Indian stock markets to reach their normal position after a political event.The present research is therefore required to address this gap and to make a significant contribution to current literature.The theoretical link between macroeconomic variables and political stability is based on four models: Efficient Market Hypothesis(EMH),Neoclassical Economics,Endogenous Growth Theory,and Cultural Political Change Theory.The study uses annual time series data from 1960 to 2018 in Pakistan and India to assess the impact of economic growth and political stability,inflation,employment,GDP,terrorist attacks,electoral attacks,political regime on stock market performance.Data are collected from various issues on economic variables such as GDP per capita(Gross Domestic Product)at constant prices of US$ 2010,gross fixed capital creation at regular prices of US$ 2010 for investment,inflation as a proxy for consumer prices,and dummy variables D1,D2 and D3 for political instability.Market capitalization,GDP,inflation,gross fixed capital investment figures for global development indices.Market capitalization data for India are only available from 1980 to 2018,and market capitalization data for Pakistan are only available from 1993 to 2016.Company News and the Asian Terrorist Platform remove the details of terrorist activity from economic times.Data on election activities were withdrawn from Pakistan and the Indian Election Commission.The details of the political regime are derived from the President of India(official website),the President of Pakistan(official website).Market capitalization is used as an important factor in determining its impact on Pakistan and India's political instability.The tool is ARDL,which is used to evaluate market capitalization relationships with other variables such as per capita GDP,expenditure(gross fixed capital formation),inflation(consumer price),and dummy variables,including terrorist and election-related incidents,and shifts in Pakistani and Indian political systems.All the under-considered variables of the model are in flow form(percent form)and the dummy variables are predicted.All other explanatory variables are GDP per capita(Gross Domestic Product)at constant prices of 2010 US$ as a proxy variable for economic growth,total fixed capital creation(percentage of GDP)as a proxy variable for production,inflation as a proxy variable for consumer prices,dummy variables D1 and D2 and D3 for political instability.The model was based on those from previous studies;Shahbaz and Ijaz(2013),Maysami and Sims(2002),Islam(2003),Maghayreh(2003),Adam and Twenboah(2008),Sharma and Mahendru(2010),Asaolu and Ogunmuyiwa(2010),Izedonmi and Abdullahi(2011),Osamwonyi and Evbayiro-Osagie(2012),which investigated the link between macroeconomic variables and stock market index.We assume that economic activity increases during economic growth and declines during the economic crisis or downturn as the analysis focus on seven variables: market capitalisation,GDP,GFC,Employment,Terrorism,Election Activities,Political Regime,Inflation.So,this defines all the variables as follows.The capitalization of the stock market shall be determined by the cumulative value of the outstanding shares of the company.MC takes the market value of the company and subtracts the market price of the stock by the number of shares outstanding.It helps investors to consider the relative size of one company to another.In econometric theory,regimes are typically modeled using current dummy variables.As a result,D3 is used as a dummy variable for adjustment in the political system.Fiftynine years of research history have gone from 1960 to 2018.D3 assigns political system implies that changes to the elected president would have a value of one,or zero,in the following times.Supporting our study and conducting a literature review on this subject.With the help of the tables,we have made a serious effort to present our findings clearly and concisely.The aim was to explain our findings and to discuss them in-depth.Proper care has been taken not to deviate from the subject of our study.During the analysis of our findings,close attention was paid to the objectives of the study.The most appropriate methods have been used for the analysis of data.The effects of the variables used have been tested for their acceptability and relevance.Using the ARDL boundary test method,the relationship between the variables used is evaluated and a literature review has been undertaken on this subject.With the help of tables,we have made our best efforts to present our results simply and descriptively.The aim was to present our findings in-depth and to address them in detail.Care was taken not to deviate from our research subject.The Autoregressive Distributed Method(ARDL)and the Error Correction Model(ECM)used to evaluate the shortterm and long-term relationship between the variables.Table 1 provides concise statistics,and it is worth remembering that the average GDP value in both Pakistan and India is higher than the GFC,IN,and MC.Table 2 shows the matrix of correlations.Analysis of the correlation matrix shows that GFC and GDP are positively correlated with MC,while INF is negatively correlated with MC in both countries Pakistan and India.Table 3 shows the results of the ADF unit roots test.ADF indicates that all the series are non-stationary at levels but stationary in the first difference.In other words,IN is stationary at I(0),similarly,MC,GDP,and GFC are stationary at I(1)in the results of India.While in Pakistan results IN and GFC is stationary at I(0).Similarly,MC and GDP are stationary at I(1).So,the results indicate that all the variables are integrated at I(1)in both countries.The Zivot Andrew root check for structural breaks is shown in Table 4,the results indicate that both the level and the first difference are stationary variables.This shows the mixed order of integration between the [I(0)/I(1)] sequence.The Pesaran et al.ARDL test can be adopted for the evaluation of cointegration regardless of whether the regressors are pure I(0),pure I(1),or a combination of I(0)and I(1).The findings in Table 3 show that all the variables in both countries are incorporated at I(1).The similarity of the variable integration order provides support for applying the ARDL bounds testing method to examine the long-term and short-term relationships between variables.Table 5 presents the outcome of the ARDL bound test for the integration of Indian variables.From Table 5,the F-statistical value(6.051335)falls above the upper bound I(1)and is more than 3,923 of the critical value,the F-test at the 5 percent significance level given by Pesaran et al.Although the F-statistical value in Pakistan is(3,963787),it falls above the upper bound I(1)and is more than 3.92 of the critical value at the 5% significance level given by Pesaran et al.This result suggests that there is co-integration between variables in both countries.Next,we calculate the long-term coefficient ARDL estimates for the model as well as the error correction model(ECM).Table 6 contains long-term estimates,while Table seven contains corresponding ECM estimates.The outcome of India's long-term relationship finding shows that the stock market index points are declining with GDP growth.However,the impact of GDP is significant as its P-value is less than 0.05.IN,GFC,EE and PR stock market output coefficient is positive and statistically insignificant,the TE coefficient is positive and highly significant.The finding of Pakistan's long-term relationship shows that the coefficient of GDP,IN and EE is positive and statistically insignificant,the coefficient of TE is positive and statistically significant,and the coefficient of GFC and PR are insignificantly negative.So,the variables are therefore co-integrated.Error correction results are shown in Table 7,the short-term coefficient of GDP and TE in India is positive and statistically insignificant.Both the EE and the PR coefficients are positive but statistically insignificant.Pakistan's finding indicates that the GFC and PR coefficients have a negative and statistically insignificant impact on MC.Similarly,the TE coefficient has a positive and significant effect,and the EE coefficient has a positive and insignificant effect on MC in the short term.The research has made an effort towards the relationship between Pakistan's political stability and India's stock market capitalization results.In the current globalized century,in which capital markets are increasingly integrated,understanding the underlying dynamics affecting domestic and global markets has become essential.Consequently,factors such as market capitalization,gross domestic product,gross fixed capital,inflation,terror events,election events,Pakistan's political system,and India.As an explanatory statement,Pakistan's stock market and India's stock market are viewed as capital markets are considered to be a very important factor in economic activity,i.e.financial markets,and political events,and therefore economic growth and the macroeconomic environment can influence the development of the stock market.This research,which focuses on assessing the impact of Pakistan and India's political stability and stock market outcomes,is used as independent variables for calculating economic growth inflation,GDP per capita,gross fixed capital creation.Terrorist events,election events,and political regimes are considered to be dummy variables in the calculation of political stability.Dependent variables require capitalization of the stock market.The thesis used both qualitative and quantitative methods of analysis.The empiric study was conducted using time series data between 1960 and 2018.Analyze the effect of macro-economic variables on stock market capitalization,use the ARDL bound research approach,and use the Zivot-Andrews root unit structural break test to check the order of integration of variables.This work will assist scientists and policy-makers in researching the impact on Pakistan and the stock market performance of India of political stability.Financial analysts also perform due diligence and background checks on investment objectives.These individuals will,therefore,draw useful perspectives from the report,drawing on their consumer experience and recommendations.Financial analysts often carry out inhouse research at times,and these studies are enhanced by survey data.In addition to its regulatory and policy change tasks,the study can be used by stock market officials and managers and policymakers.Better draft laws and regulatory frameworks are drawn up,guaranteeing,or upholding the norm from the legislative and legal role.Work may also be a guideline in carrying out these policy activities.Further studies should be undertaken to increase the number of components in building the index of political instability,such as suicide attacks in the region,the longevity of government,drone wars,strikes,assassinations,protests,demonstrations.This analysis looked at terrorist attacks,election attacks,and authoritarian structures as factors in building the index of political instability.However,factors such as suicide attacks in the region,the longevity of government,drone attacks,bombings,assassinations,protests,demonstrations are essential factors that make the political situation unstable.Therefore more research needs to be done based on adequate data on these factors and to include them in the construction of the political instability index.Besides,studies should be conducted by increasing the size of the sample.This study examined the relationship between stock prices and political uncertainty using four control variables(inflation,gross fixed capital,and gross domestic product).However,a more in-depth review may take place,including other control factors such as legal structures,international investment,and energy crises.Other scholars will also find this study to be relevant to them;they may use the findings of the study as a reference point in the future and as a basis for further research.They also add significantly to the breadth and quality of their research work and publications.Other researchers may also use the findings of the study to further their knowledge base on the parameters of the study.