The Effects of Terrorism and War on the Oil and Prices Stock Indices Relationship
AbstractThis paper, investigates the effect war and terrorism, have on the covariance between oil prices and the indices of four major stock markets - the American S&P500 and the European DAX, CAC40 and FTSE100 - using nonlinear BEKK-GARCH type models. Findings reported herein indicate that the covariance between stock and oil returns is affected by war. A tentative explanation is that the two wars examined here, predispose investors and market agents for more profound and longer lasting effects. On the other hand, in the case of terrorist incidents that, vis-à-vis war, are of a more transitory nature and one-off security shocks, only the co-movement between CAC40, DAX and oil returns is affected. No significant impact for the same terrorist events is observed in the relationship between the S&P500, FTSE100 and oil returns. This difference in the reaction may tentatively be interpreted as indicating that the latter markets are more efficient in absorbing the impact of terrorist attacks.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Economics of Security Working Paper Series with number 57.
Length: 30 p.
Date of creation: 2011
Date of revision:
war; terrorism; crude oil; stock market returns; co-movement;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- E0 - Macroeconomics and Monetary Economics - - General
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-CWA-2012-01-25 (Central & Western Asia)
- NEP-ENE-2012-01-25 (Energy Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Miller, J. Isaac & Ratti, Ronald A., 2009.
"Crude oil and stock markets: Stability, instability, and bubbles,"
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- Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2012. "Terrorism Induced Cross-Market Transmission of Shocks: A Case Study Using Intraday Data," Economics of Security Working Paper Series 66, DIW Berlin, German Institute for Economic Research.
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