Tanveer Ahmad, Syed Jawwad Shahzad, Mobeen ur Rehman


This study aims to identify the effect of terrorism on size andvalue premium using value weighted monthly returns for non-financialfirms from January 2001 to December 2010. In addition to independentsize and BE/ME (book equity to market equity) sorted portfolios, twodimensional portfolio formation methodology of Dimson, Nagel, andQuigley is used. The results reveal that market, size, value premiumand terrorism have a significant positive impact on stock returns. Thestudy further suggests that value and size premiums are dependent onthe psychological impact created by terrorist attack. Findings suggestthat the return on small stocks is higher than the returns on largestocks and the size premium occurs mainly during the months of higherterrorism activities. In contrast, value premium is more profoundduring the months of low (high) terrorist activities for portfolios sortedon one (two) dimension. This indicates that both size and BE/MEpremiums are affected by investor sentiment


Value premium, size premium, terrorism, Pakistan.

Full Text:



Baker, M., & Wurgler, J. (2006). Investor Sentiment and the Cross-Section of Stock Returns. The Journal of Finance, 61(4), 1645-1680.

Banz, R. W. (1981). The relationship between return and market value of common stocks. Journal of Financial Economics, 9(1), 3-18.

Berk, J. B. (1995). A critique of size-related anomalies. Review of Financial Studies, 8(2), 275-286. doi: 10.1093/rfs/8.2.275

Berk, J. B., Green, R. C., & Naik, V. (1999). Optimal Investment, Growth Options, and Security Returns. The Journal of Finance, 54(5), 1553-1607.

Black, A. J., & Fraser, P. (2003). The value premium: rational, irrational or random. Managerial Finance, 29(10), 57-75. doi: 10.1108/03074350310768517

Brown, P., Keim, D. B., Kleidon, A. W., & Marsh, T. A. (1983). Stock return seasonalities and the tax-loss selling hypothesis: Analysis of the arguments and Australian evidence. Journal of Financial Economics, 12(1), 105-127.

Bueno de Mesquita, E., Fair, C. C., Jordan, J., Rais, R. B., & Shapiro, J. N. (2014). Measuring political violence in Pakistan: Insights from the BFRS Dataset. Conflict Management and Peace Science.

Cao, M., & Wei, J. (2005). Stock market returns: A note on temperature anomaly. Journal of Banking & Finance, 29(6), 1559-1573.

Chan, K. C., & Chen, N.-F. (1991). Structural and Return Characteristics of Small and Large Firms. The Journal of Finance, 46(4), 1467-1484.

Chen, N. F., & Zhang, F. (1998). Risk and Return of Value Stocks. The Journal of Business, 71(4), 501-535.

Chen, A. H., & Siems, T. F. (2004). The effects of terrorism on global capital markets. European Journal of Political Economy, 20(2), 349-366.

Claessens, S., Dasgupta, S., & Glen, J. (1995). Return Behavior in Emerging Stock Markets. The World Bank Economic Review, 9(1), 131-151.

Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor Psychology and Security Market Under- and Overreactions. The Journal of Finance, 53(6), 1839-1885.

De Bondt, W. F. M., & Thaler, R. H. (1987). Further Evidence On Investor Overreaction and Stock Market Seasonality. The Journal of Finance, 42(3), 557-581.

Dimson, E., Nagel, S., & Quigley, G. (2003). Capturing the Value Premium in the United Kingdom. Financial Analysts Journal, 59(6), 35-45.

Drakos, K. (2004). Terrorism-induced structural shifts in financial risk: airline stocks in the aftermath of the September 11th terror attacks. European Journal of Political Economy, 20(2), 435-446.

Edmans, A., GarcÍA, D., & Norli, Ø. (2007). Sports Sentiment and Stock Returns. The Journal of Finance, 62(4), 1967-1998.

Fama, E. F., & French, K. R. (1992). The Cross-Section of Expected Stock Returns. The Journal of Finance, 47(2), 427-465.

Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.

Fama, E. F., & French, K. R. (1995). Size and Book-to-Market Factors in Earnings and Returns. The Journal of Finance, 50(1), 131-155.

Fama, E. F., & French, K. R. (1998). Value versus Growth: The International Evidence. The Journal of Finance, 53(6), 1975-1999.

Fama, E. F., & French, K. R. (2006). The Value Premium and the CAPM. The Journal of Finance, 61(5), 2163-2185.

Hahn, J., & Lee, H. (2006). Yield Spreads as Alternative Risk Factors for Size and Book-to-Market. Journal of Financial and Quantitative Analysis, 41(02), 245-269.

Hassan, A., & Javed, M. T. (2011). Size and value premium in Pakistani equity market. African Journal of Business Management, 5(16), 6747-6755.

Hirshleifer, D., & Shumway, T. (2003). Good Day Sunshine: Stock Returns and the Weather. The Journal of Finance, 58(3), 1009-1032.

Hong, H., & Stein, J. C. (1999). A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets. The Journal of Finance, 54(6), 2143-2184.

Houge, T., & Lughran, T. (2006). Do Invesrtors Capture the Value Premium? Financial Management, 35(2), 5-19.

Kamstra, M. J., Kramer, L. A., & Levi, M. D. (2003). Winter blues: A SAD stock market cycle. American Economic Review, 324-343.

Keim, D. B. (1983). Size-related anomalies and stock return seasonality: Further empirical evidence. Journal of Financial Economics, 12(1), 13-32.

Lakonishok, J., Shleifer, A., & Vishny, R. W. (1994). Contrarian Investment, Extrapolation, and Risk. The Journal of Finance, 49(5), 1541-1578.

Loughran, T. (1997). Book-to-Market across Firm Size, Exchange, and Seasonality: Is There an Effect? Journal of Financial and Quantitative Analysis, 32(03), 249-268.

Nawazish, E. M. (2008). Size and Value Premium in Karachi Stock Exchange. Cahier DRM–Finance, 2008(6), 1-39.

Petkova, R., & Zhang, L. (2005). Is value riskier than growth? Journal of Financial Economics, 78(1), 187-202.

Reinganum, M. R. (1983). The anomalous stock market behavior of small firms in January: Empirical tests for tax-loss selling effects. Journal of Financial Economics, 12(1), 89-104.

Rizova, P. (2006). Are you networked for successful innovation? MIT Sloan Management Review, 47(3), 49-55.

Rosenberg, B., Reid, K., & Lanstein, R. (1985). Persuasive evidence of market inefficiency. The Journal of Portfolio Management, 11(3), 9-16.

Zhang, L. (2005). The Value Premium. The Journal of Finance, 60(1), 67-103.

DOI: http://dx.doi.org/10.22555/pbr.v17i4.560


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.