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Changes in equity returns and volatility across different Australian industries following the recent terrorist attacks

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  • Ramiah, Vikash
  • Cam, Marie-Anne
  • Calabro, Michael
  • Maher, David
  • Ghafouri, Shahab
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    Abstract

    We investigate the impact of five recent terrorist attacks on equities listed on the Australian Stock Exchange. Following the Global Industry Classification Standard, we analyse how these events affect the different sectors in Australia. Using parametric and non-parametric tests, we investigate the relationship between stock returns for equities listed in these sectors and terrorist attacks. We report significant short term negative abnormal returns around the September 11 attacks and to a lesser extent, the Madrid and London bombings. Our evidence shows a weak positive equity response to the Bali bombing, and no response from the Mumbai attack in the Australian market. We also document negative industry abnormal returns as high as 37.30% on the day in the Utilities sector. Our findings show that systematic risk of certain sectors increased after the events of September 11 but remained unchanged for the other attacks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 18 (2010)
    Issue (Month): 1 (January)
    Pages: 64-76

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    Handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:64-76

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Terrorism Equity market Abnormal returns Non-parametric test Parametric test Systematic risk Australia;

    References

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    1. Chan, Yue-cheong & John Wei, K. C., 1996. "Political risk and stock price volatility: The case of Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 259-275, July.
    2. Vincent Richman & Michael R. Santos & John T. Barkoulas, 2005. "Short- And Long-Term Effects Of The 9/11 Event: The International Evidence," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(07), pages 947-958.
    3. Corrado, Charles J. & Truong, Cameron, 2008. "Conducting event studies with Asia-Pacific security market data," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 493-521, November.
    4. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
    5. Yao, Juan & Gao, Jiti & Alles, Lakshman, 2005. "Dynamic investigation into the predictability of Australian industrial stock returns: Using financial and economic information," Pacific-Basin Finance Journal, Elsevier, vol. 13(2), pages 225-245, March.
    6. Worthington, Andrew & Valadkhani, Abbas, 2005. "Catastrophic Shocks and Capital markets: A Comparative Analysis by Disaster and Sector," Economics Working Papers wp05-20, School of Economics, University of Wollongong, NSW, Australia.
    7. Drakos, Konstantinos, 2004. "Terrorism-induced structural shifts in financial risk: airline stocks in the aftermath of the September 11th terror attacks," European Journal of Political Economy, Elsevier, vol. 20(2), pages 435-446, June.
    8. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June.
    9. Carter, David A. & Simkins, Betty J., 2004. "The market's reaction to unexpected, catastrophic events: the case of airline stock returns and the September 11th attacks," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(4), pages 539-558, September.
    10. Nikkinen, Jussi & Omran, Mohammad M. & Sahlstrom, Petri & Aijo, Janne, 2008. "Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 27-46.
    11. Harumi Ito & Darin Lee, 2005. "Comparing the Impact of the September 11th Terrorist Attacks on International Airline Demand," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(2), pages 225-249.
    12. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
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    Cited by:
    1. 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.
    2. Marie-Anne Cam & Vikash Ramiah, 2014. "The influence of systematic risk factors and econometric adjustments in catastrophic event studies," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 171-189, February.
    3. Ramiah, Vikash & Martin, Belinda & Moosa, Imad, 2013. "How does the stock market react to the announcement of green policies?," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1747-1758.
    4. Chang, Bisharat & Iqbal, Javed, 2014. "Financial Analysis of Industrial Portfolios in Pakistan: A Comparative Analysis of Pre 9/11 and Post 9/11Period," MPRA Paper 55433, University Library of Munich, Germany.
    5. Christos Kollias & Stephanos Papadamou & Vangelis Arvanitis, 2013. "Symposium - Does Terrorism Affect the Stock-Bond Covariance? Evidence from European Countries," Southern Economic Journal, Southern Economic Association, vol. 79(4), pages 832-848, April.

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