The price of terror: The effects of terrorism on stock market returns and volatility

Department of Commerce, Massey University, New Zealand; Centre for Applied Macroeconomic Analysis (CAMA), Canberra, Australia; University of Rome, Tor Vergata, Italy; Centre for Empirical Finance, Brunel University, Uxbridge, Middlesex UB8 3PH, UK
Economics Letters (Impact Factor: 0.45). 12/2008; DOI: 10.1016/j.econlet.2008.07.007

ABSTRACT In this paper we investigate the effects of terrorism on the financial markets. Evidence from six different financial markets shows that terror has a significant impact on both stock markets and the stock market volatility, and the magnitude of these effects are larger in emerging markets.

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    ABSTRACT: This study was undertaken to assess the impact of terrorism on major stock exchange of Pakistan i.e. Karachi Stock Exchange.The impact of most pronounced terrorist attacks of the last decade i.e. Assassination of ex Prime Minister Benazir Bhutto, Attack on Marriott Hotel Islamabad and Attack in Darra Adam khel 2010was studied on KSE 100 index. Event study methodology was used toanalyze the data. The results of study showed that the Marriott hotel attack produced the negative impact throughout estimation windows, ex Prime Minister Benazir Bhutto assassination attack resulted in sharp decline followed by immediate recovery of KSE 100 index, while there was a little negative impact of DarraAdamkhel attack on KSE 100 index which too lasted for a day or two. The results also highlighted that the venue and the target of attack are the important contributors in signifying the impact of attack on stock market.
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    ABSTRACT: We record the existence of an availability heuristic that is reflected in disaster myopia of U.S. investors and exists prior to the attacks of 9/11. We argue that this is fueled by an aggregate experience hypothesis effect, resulting in a pronounced increase in the sensitivity of U.S. stock prices to terrorist attacks on foreign soil. After 9/11, stock prices react proportionally to the size of an attack and the share of FDI stock held in the region by the sector in which firms operate. This effect, non-existent prior to 2002, has become increasingly strong in recent years.
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    ABSTRACT: This paper investigated the impact of prolonged terrorist activities on stock prices of different sectors listed in Karachi Stock Exchange by using newly developed terrorism impact factor index with lingering effect (TIFL) and monthly time series data from 2002(Jan) to 2011(Dec). Johansen and Jeuselius cointegration revealed long run relationship between terrorism and stock price. Normalized cointegration vectors are used to test the effect of terrorism on stock price. Results demonstrated signicantly mixed positive and negative impact of prolonged terrorism on stock prices of different sectors and have shown that market has not become insensitive to the prolonged terrorist attacks.