Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.4, No.1, 2013 165 Stock Market Reaction to Political Events (Evidence from Pakistan) Sajid Gul Faculty of Business Administration Air University Islamabad , Mardan 23200 KPK Pakistan Tel: +92-332-8102955 *E-mail: sajidali10@hotmail.com Muhammad Tauseef Khan MS Scholar Air University Islamabad Naveed Saif PhD scholar Gomal University D.I Khan Shafiq Ur Rehman Lecturer Department of Management Studies University of Malakand Roohullah Institute of Management Sciences Peshawar Abstract This study examines the impact of events of different nature like: political, natural calamities and terrorism on the share prices of the financial sector of Pakistan. A sample of 14 companies are selected randomly from the financial sector (Insurance and Banking) listed on the KSE-100 index. The time span is of four years i-e 2007-10. The data is analyzed through paired samples t-test statistics. The results indicate that events have significant impact on the stock prices and prices behave negatively when a major event emerges on national or international front. A joint effort is required from different individuals, stake holders, regulators, economists, investors, government and foreign officials to secure the effectiveness of the financial market in Pakistan from the curse of political pressure, terrorists and suicidal bombing which in return help in the prosperity of the country. To encourage and motivate the investors both domestically or internationally the governance system in country should be fair and transparent and secure environment would increase the morale of the investors. Keywords: Paired sample t-test statistics; Events study Method Approach, Stock Prices 1.1 Introduction Stock market is a place where trading of publicly owned securities took place. It plays pivotal role in transferring of surplus funds from one individual to another and performs the function of financial inter mediation between two parties one has in surplus and the other one has deficit in income. Stock market has a strong link with the global and domestic stability of a country. The regional, national and global uncertainty and unsound financial standings affects the stock exchange in a country. Crops production, manufacturing industries or infra structure damages due to natural disasters, calamities and political uncertainties adversely affect the stock markets stability and integrity. The economic situations inflation, recession and price fluctuations have direct impact on