Market dynamics in times of trade disruptions: a study of market response to the ban of trade documents

Purpose This event study aims to investigate the impact of the trade policy shift, specifically the government of Pakistan's restriction on financial institutions issuing trading instruments, that is letters of credit. Design/methodology/approach The event was determined in two ways. The first is the adverse impact on the Karachi Stock Exchange (KSE-100 index). Second, Pakistan's shipping sector plays a significant role in determining the extent of this event. This event study has grouped the data set from Pakistan's shipping sector, listed on the Karachi Stock Exchange (KSE-100 index), and is designed with a 41-day window. A time series dataset is gathered from the investing.com website to assess this event. This measure started being practised on 19 May 2022. Findings A significant weakness of this event had a profound impact on Pakistan's import, export and operational activities. The study's findings revealed that inefficient markets, such as those in Pakistan, Sri Lanka and Turkey, are immediately affected by such events, government announcements and climate complexities. Originality/value The study reports various local and international severities that may affect Pakistan in the event of future repetition or the occurrence of any other similar measures. Concurrently, research has identified policy implications to address such events.