Does Panama Papers Dint Stock Market(s) World Over?

Abstract

Panama papers implicated celebrities round the globe for money
laundering, tax evasion, and financing terrorist activities, on April 4th,
2016. Event study methodology is employed by using constant mean
return model to gauge investors’ behavior in forty-two stock exchanges
before, on and after this event day. The study is believed to be first of
its kind in the context of Panama papers. Results of ‘t – test’ revealed
statistically significant abnormal returns for three days, before and
after the event day in two event windows (11, and 21 days), but on
different dates, owing to accumulation effect. Thirty-three stock
exchanges experienced statistically significant average abnormal
returns (AAR), whereas, nine stock exchanges exhibited no response.
Fifteen out of thirty-three exchanges witnessed cumulative average
abnormal returns (CAAR) in positive direction, immediately after the
event day for both event windows substantiating the underreaction
hypothesis. Ten out of fifteen countries were found listed as ‘more
corrupt’ on the Corruption Perception Index. The investors’ apathy