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Terrorism and Stock Market Sentiment

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Author Info

  • Jussi Nikkinen
  • Sami Vähämaa

Abstract

This paper examines the effects of terrorism on stock market sentiment by focusing on the behavior of expected probability density functions of the FTSE 100 index around terrorist attacks. We find that terrorism has a strong adverse impact on stock market sentiment. In particular, terrorist attacks are found to cause a pronounced downward shift in the expected value of the FTSE 100 index and a significant increase in stock market uncertainty. Furthermore, our results show that the expected FTSE 100 probability densities became significantly more negatively skewed and fat-tailed in the immediate aftermath of terrorist acts. Copyright (c) 2010, The Eastern Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2010.00246.x
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Bibliographic Info

Article provided by Eastern Finance Association in its journal Financial Review.

Volume (Year): 45 (2010)
Issue (Month): 2 (05)
Pages: 263-275

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Handle: RePEc:bla:finrev:v:45:y:2010:i:2:p:263-275

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Web page: http://www.easternfinance.org/
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Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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Cited by:
  1. Kollias, Christos & Kyrtsou, Catherine & Papadamou, Stephanos, 2013. "The effects of terrorism and war on the oil price–stock index relationship," Energy Economics, Elsevier, vol. 40(C), pages 743-752.
  2. Christos Kollias & Catherine Kyrtsou & Stephanos Papadamou, 2011. "The Effects of Terrorism and War on the Oil and Prices Stock Indices Relationship," Economics of Security Working Paper Series 57, DIW Berlin, German Institute for Economic Research.
  3. Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2013. "European Markets’ Reactions to Exogenous Shocks: A High Frequency Data Analysis of the 2005 London Bombings," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(4), pages 154-167, November.

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