The current affairs greatly affect the stock prices. Its important to keep track of the trends and news in the environment to successfully cope up with the chaging dimensions of the stock market whether you are a long-term investor or a short-term investor. There are different types of news, some are classified as 'Good News' which have a good impact on the stoc k market, some as 'Bad News' having bad impact on the stock market and some do not have any considerable impact on the stock market. But it primarily depends on the context, means some news might be 'Good' for one stock and at the same time it is 'Bad' for another. So predicing the affect of news on stock market is really a complex task and involves deep insight and experience of the stock market. Often incorrect news or 'Rumors' also affect the performance of the market and may result in the sudden up rise or down fall of the stock prices.
Because of the business globalization and reach of media to each and every individual, the International news also have an adverse affect on the stock prices. Sometimes 'Bad' news happening in one country greatly affects the stock prices in other countries. And it has been observed that negative or 'Bad' news affect stock prices more severely than positive or 'Bad' news. The pshycology or sentiments of the people also have an impact on the stock prices because in tough environment, a small negative news can have big impact on the market.
LITERATURE REVIEW
The prediction of the impact of particular kind of news on stock market is the most challanging task for the investors. According to a well known financial theory "Random Walk Hypothesis" (Paul Cootner 1964) ( Fama, Eugene F 1965) (Malkiel, Burton G 1973) it is not possible to predict the future trend of the stock market because it evolves according to a 'Random Walk' and does not have a fixed or pre-defined pattern. But still Researchers have been doing work in this field to find out some co-relations between current affair news and their effect on stock prices. Many studies (Chaudhary Mohammad Irfan, Mohammed Nishat, 2002) (Mehr-un-Nisa, Mohammad Nishat 2012) (Muhammad Imtiaz Subhani, Syed Akif Hasan, Arsalan Bhagwanee, Amber Osman, 2012) (Dr Aurangzeb, Tasfoura Dilawer, 2012) have been conducted to anaylze the impact of news on Karachi Stock Exchange by discovering the empirical relation between stock prices, financial fundamentals and macroeconomic factors.
According to a study (Mehr-un-Nisa, Mohammad Nishat 2012) the critical factors that affect the current stock prices are previous behaviour of stock prices, company size and previous earnings per share. In addition , macroeconomic factors like GDP growth, rate of interest and financial debt have significant relationship with the stock prices. It reveals that stock prices are determined by 'Supply and Demand' forces and the factors behind the increase or decrease of demand and supply fall into three categories:
Fundamental Factors
Technical Factors
Market Sentiments
Fundamental factors include interest rate, the exchange rate, inflation, earning and valuation multiple. Technical factors include economic strength of market, substitute, incidental transactions, demographic trends and liquidity (Mehr-un-Nisa, Mohammad Nishat 2012).
Another study (Muhammad Imtiaz Subhani, Syed Akif Hasan, Arsalan Bhagwanee, Amber Osman, 2012) evaluates the systematic risk of Sudden news on stock prices and suggests that in the case of a suddent or unexpected news the probabaility of taking risks by the investors becomes greater and a similar pattern is found in the investement in equity market behaviour. In contrast if there is no suddent or unexpected news the pattern of investment in equity market is completely different and investors do not tend to take higher risks.
The study (Chaudhary Mohammad Irfan, Mohammed Nishat, 2002) explains the stock price fluctuations due to the six theory-suggested fundamental variables i.e dividend yield, payout ratio, size of the firm, leverage, earning volatility and asset growth in Karachi Stock Exchange during 1981 to 2000. The main focus of this study is to identify the combined effect of all these above mentioned factors on the stock prices. It reveals that most critical factors that had impact on stock prices during 1981 to 2000 were leverage, size, dividend yields and payout ratio.
The study (Dr Aurangzeb, Tasfoura Dilawer, 2012) examines the impact of terrorism on stock market and to find out the combined effect of terrorist activities on stock returns on the basis of four variables:
Bombing
Armed Isolation
Assassination
Hostage Taking
The experimentation was done on monthly data of 30 companies, gathered from 2004 to 2010, using regression analysis and granger causality. The study found out that stock prices react negativily to terrosirst activties but variation in some cases do exist. It suggests that companies should hire people to work closely at governement and non-govenerment level to analyze the current situation. When companies are aware with the current situation then they can devise policies to optimize their business by preventing themslves from such terrorist activities.
The study (Miqdad Ali Khan, Sarah Javed, Shakil Ahmad, Mahreen, Faisal Shahzad 2009) evaluates the impact of Pak-US relationship on KSE 100 index. The study reveals that Pak-US relationship do have significant effect on the KSE 100 index and it reacts accordingly to the event related to Pak-US relationship. If the events is related to peace than a visible uprise or increase in the stock market is observed. In contrast in case of a conflicting situation it directly results in the decreased performance of the stock market.
Current affairs do have a significant impact on the stock market. A major problem is that predicting the future trend of the market on the basis of news is extremely difficult. News have varying affect on stock prices, it might be good for one stock and at the same time bad for another. But if we analyze the results of all of the above mentioned studeis we do find some commong trends:
Most of the time good news has positive impact on majority of stock prices
Havind a bad news doen not gurantee that stock prices will fall down.
Same news have different affect depending upon context and current environment.
Stock market reacts to negatice news more agressively than positive news.
The good news al local level is overshadowed by bad news at global level.
In a critical situation even a small bad news is enough for the downfall of the stock prices.
There are various factors which effect stock market. Some of them are mentioned in the following figure.
