The Impact Of Political Instability Driven By The Tunisian Revolution On Stock Market Volatility: Evidence From Sectorial Indices

Abstract

The aim of this paper is to study the impact of political uncertainty, driven by the Tunisian Revolution, on return and volatility of major sectorial stock indices in the Tunisian Stock Exchange. We specifically use EGARCH (1.1) model from 01/12/2010 to 31/08/2016. This model is applied to the daily returns relevant to ten sectorial stock indices and to the Tunisian benchmark index (TUNINDEX). To test the impact of political news on returns and volatility, we divided them into two groups (good and bad news).
 Our results show that both of good and bad news have increased the volatility of major selected indices, including the TUNINDEX. However, the return of all indices are not affected by the political news. We then examined the impact of terrorism on the behavior of indices return and volatility. Results show that the Tunisian market responds significantly to terrorist acts. Hence, the return declines and the volatility increase the day of terrorist attacks. Furthermore, results confirm that bad news have stronger effect on the volatility than good news, which reveal the asymmetric effect of volatility.

Corruption, Terrorism and the Stock Market: The Evidence from Iraq

“…Here, the study cannot reject the second hypothesis. The result of the regression model regarding terrorism is in agreement with theoretical viewpoint and with some of the past studies (Alam, 2013;Arin et al, 2008;Bilal et al, 2012;Christofis et al, 2013;Gadhoum et al, 2017;Geyikci & Tepeci, 2017;Hadhek et al, 2019;Kollias et al, 2011;Moussa & Talbi, 2019;Nguyen & Enomoto, 2009;Zaiane, 2018) that terrorist activities create direct converse impact on investors and state business environment. However, this study results appear differently with some other studies (Arif & Suleman, 2014;Hassan et al, 2014).…”

“…Besides, a study showed a strong influence of terrorism acts on the behavior of ten sectorial stock indices return to Tunisian benchmark index (TUNINDEX) using the daily data for the period (2010-2016) (Zaiane, 2018). Moreover, a study used daily data for two sub periods before and after revolution and the output shows that the terror acts affect the performance and volatility of the Tunisian market performance especially after the revolution (Moussa & Talbi, 2019).…”

“…Nevertheless, The Arab Spring (2011) as a revolution or civil uprising which started in Tunis (Zaiane, 2018) and the emergence of terrorist groups such as Islamic State in Iraq and Syria (ISIS/ISIL) after (2014) which the number of terrorist activities increased globally (Asaad, Marane & Mustafa, 2020). Subsequently, the crude oil prices declined sharply, followed by chaos and instability in political system spread in different developing countries especially in the Middle-East.…”

“…A work detected that some macroeconomic variables and political risks are significant and strongly associated with the growth in stock market capitalization, thus these are main determinants of (42) stock market development using (GMM) estimation for a panel data for the period (1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004) (Yartey, 2008). Moreover, a work showed that all indices return to Tunisian benchmark index are not affected by the political news using the daily data for the period (2010-2016) (Zaiane, 2018).…”

“…Iraq is still considered a country which is at high levels of political risk in international classifications by institutions which are specialized in risk assessment for the study period ranging (2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018). This means that the impact of the & Gazdar, 2010; Girma & Shorland, 2008;Gunay, 2016;Modugu & Dempere, 2020;Moussa & Talbi, 2019;Yartey, 2008;Zaiane, 2018) or oil price (Berk & Aydogan, 2012;Bjornland, 2009;Creti, Ftiti & Guesmi, 2013;Eryigit, 2009;Hammoudeh & Li, 2005;Marane, 2015;Nguyen, Nguyen & Nguyen, 2020;Oskooe, 2011) on the development of stock market. However, these results are still inconsistent and non-consensus.…”