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This paper investigates the impact of political shocks (positive and negative) on financial markets. Using data from Pakistan for the period January 1999 to September 2006, we link ‘a’ political event to the financial market volatility. We use high frequency data from three indicators (currency, stock and money market) of the financial market for empirical estimation. We employ a Markov Switching process to identify the low and high volatility regimes in Pakistan’s financial market and then link these regimes to certain political events. We use data on daily observations of exchange rates, stock prices and interest rates to perform empirical test. Finally, we trace the impact of political events moving from one market to another using Granger causality tests within Markov Switching VAR model. The results confirm the changes in the market volatility as a result of some domestic and international events having impact on the domestic economy and the financial market. The results also suggest that the markets have some weak short-run linkages but do not support a long-run causal relationship.