Abstract:
This paper attempts to examine the sensitivity of stock prices to economic events in
an emerging market and in a developed market. Historically several studies have been
undertaken on the stock market sensitivity on important economic events in several
markets. The sensitivity of stock prices to major economic events is measured by
using the volatility test of Inclan and Tiao which objectively differentiates the volatile
period from the weekly data series of both markets. The All Share Price Index (ASPI)
and New York Stock Exchange (NYSE) Composite Index are used for the volatility
test of Inclan and Tiao (1994). Then, the major economic events are matched with the
volatility periods of the prices. It is found that the stock prices in both markets are
highly sensitive to the major economic events. The findings of this study consistent
with Bailey and Chung (1995) who find that important political events tend to be
associated with sudden change in volatility. Thus this suggests that portfolio managers
should be cautious in advising their clients in dynamic situations in the markets in this
