The Karachi Stock Exchange, which is the first stock exchange of Pakistan, was established on September 18, 1947 and incorporated in March 10, 1949. Nonetheless, in Jan 2016, Pakistan Stock Exchange was established after the mergers of Karachi, Lahore and Islamabad stock exchanges and currently has more than 580 listed companies in 35 different sectors with a total market capitalisation of Rs. 9.2 trillion. Close to 600 companies are registered in the stock market, but there are a handful of companies which determines the movements of stock market. Most of the registered companies are state owned enterprises. One of the responsibilities of the Stock Exchange is to activate savings for investment within an economy. When anyone withdraws their money from bank and invests it in the stock market, this leads to an additional balanced portion of resources, because money, which might be devoted or kept back in inoperative deposit with banks, are mobilisesd and redirected to support commerce and industry. In view of its importance and nature of job, the stock market also reacts very sensitively to any unpleasant incident or poor policies by its regulators. Role of Stock Exchanges are varied and highly important in the development of economy of a country. They measure and control the growth of a country. Stock markets are the places where you are the one who does the business. Your stock trading transactions are executed at the stock exchanges through your broker, unless you have a membership with that exchange, which enables you to trade directly. Although stock market is considered to be the indicator of economic performance, this is only partly true. Nevertheless, it has also been said that improvement in overall growth is considered to be the indicator of profitability, hence is the main factor associated with the stock market movements. This phenomenon is investigated by Dr Fazal Hussain at PIDE and Dr Abdul Rashid at the International Islamic University. In 2013, during the smooth transition of government, investors behaviour underwent a remarkable change which resulted in the stock market crossing all the barriers. It reached up to 48240 point till the end of 2017 and later reached up to 52872 points Medium to longer term movements in stock market are associated with GDP growth and other real sector movements but daily movements cannot be associated with it. Since policies do not change on a daily basis, factors like terrorism, rapidly changing political environments, internal and external crisis and expected change in government policies shape the behaviour of stock market. These are some of the factors due to which stock markets exhibit volatility and sometimes negative news causes huge loss to the investors. Shahid Raza and M Ali Kemal found in their paper at PIDE that political and global news has the maximum effect on the stock market in day to day movements. Another study at PIDE found that a specific event, if repeated, has lesser impact on the stock market unless it has a significant severity. Our market is very volatile and due to factors mentioned above and few more, the stock markets cannot sometimes perform effectively. Therefore, in May 2017 market was at its peak 52872 points, but fell into Panama trap to 41000 points. Is it merely because of political uncertainty in the country? If we just look at the data of stock market from 2003 to date, we can see a big boom in the stock market and PSX were also included in MSCI in 2014. In 2003, the index was standing at 2700 points and till 2008, it reached up to 13000 points, which shows a good stability in the political, financial and economic environment and the fact that foreigners invested during the era made the stock market moving in an upward direction. One of the major contributors of market stability is also associated with better regulatory framework under the Security and Exchange Commission of Pakistan (SECP). Although SECP’s regulations were still working in 2008 and 2009, it was the most disastrous period for Pakistan not only for the stock market but for the stability of the country. We had seen the political powers changing, financial crisis in the world and the major problem of terrorism claimed lives of Benazir Bhutto and other 173 terrorist attacks in Pakistan. This caused the fall of stock market to 5753 points. But we cannot associate the decline in stock market with terrorism only, as there are several other factors in conjunction with terrorism such as decline in growth and higher inflation in the country. During the era of 2009 till start of 2013, the stock market rose steadily due to political stability and a decline in terrorist attacks helped Pakistan grow. The market reached up to almost 18,000 points before the general elections. In 2013, during the smooth transition of government, investors behaviour underwent a remarkable change which resulted in the stock market crossing all the barriers. It reached up to 48240 point till the end of 2017 and later reached up to 52872 points. No one had predicted the stock market to go this high. The optimists thought it will go further but due to Panama Leaks, but it became volatile again. The Panama Leaks saga can be termed as political instability because it was creating problems for the ruling party. Since then, the stock market dropped to 40000 points. However, close observation after May 2017 shows that index went up at the time of Supreme Court’s decision disqualifying Nawaz Sharif and also at the time of the announcement of JIT report’s findings. This implies that strong institutions have significant impact on the stock market movements. The same has also been shown by Shahid Raza and M Ali Kemal study at PIDE. Local participants who had accumulated the six heavyweight (OGDCL, UBL, HBL, Lucky Cement, MCB and Engro Corporation) stocks in anticipation of selling them to foreign funds at a higher price had carried market prices to unsustainable levels. On May 25 2017, at the height of the bull run, government stocks also suffered badly and stock market lost more than 10,000 points as panic gripped the market on the complete lack of interest shown by EM Funds. Local investors started to unwind their positions. In the process, the six government stocks have seen a major rout. Most market participants and even individual investors who were keeping to the side-lines said that political upheaval does cause fear in the minds of a change in government and inconsistency in economic policies. But whether the present government stays or falls, the irrefutable fact is that everyone knows that stock markets all over the world dislike uncertainty. There goes an adage: “For the market, uncertainty is worse than bad news”. Uncertainty has many dimensions. Political, economic, financial factors and other policy uncertainties have their own dimensions. Political uncertainty in our country is linked to policy uncertainty which is two pronged. Investors invest due to links with the head of the government and investors are averting the risk due to the fear of policy discontinuity. The former is also linked with those investors who pushed government to make policies in their favour. Therefore, uncertainty needs to be stopped. Bubble of 10000 points has burst and now we will make new bubble as the uncertainty ends. Policy continuity is important and institutions need to be stronger for overall stock market stability. The writer is Assistant Professor, Iqra University Islamabad Campus and can be reached at usmankemal@iqraisb.edu.pk Published in Daily Times, December 29th 2017.