Systematic Risk and Socio-Political Factors: The Case of Pakistan Stock Exchange

The study aims to investigate the casual effect of Socio-Political factors on Systematic risk in Pakistan Stock Exchange. For this purpose, the study used 250 Non-Financial companies monthly rolling Beta (36 months window) data as well as Socio-Political factors like Assassination, Terrorism, Riots and General Strikes from 2001-2010 by using 23,349 observations. Assassination was further divided into two dimensions i.e. Assassination and Assassination through drone attack. Terrorism was divided into three sub dimensions i.e. Guerilla Attacks on Military, Police, Paramilitary and Intelligence, Terrorism (Terrorism attack on General mass) and Military Paramilitary or Police Attack on non-state combatants. The study used stepwise regression to identify the variables affecting the systematic risk. With exception to Riots, number of events instead of number of persons killed found to be statistically significant proxies to measure the effect of Socio-Political factors on systematic risk. General strike has no effect on systematic risk.