Terrorism Induced Cross-Market Transmission of Shocks: A Case Study Using Intraday Data
AbstractTerrorist incidents exert a negative, albeit generally short-lived, impact on markets and equity returns. Given the integration of global financial markets, mega-terrorist events also have a high contagion potential with their shock waves being transmitted across countries and markets. This paper investigates the cross-market transmission of the London Stock Exchange's reaction to the terrorist attacks of 2005. It focuses on how this reaction was transmitted to two other major European stock exchanges: Frankfurt and Paris. To this effect, high frequency data are used and multivariate GARCH models are employed. Findings reported herein indicate that the volatility of stock market returns is increased in all three cases.
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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 66.
Length: 22 p.
Date of creation: 2012
Date of revision:
terrorism; capital markets; contagion; multivariate GARCH;
Find related papers by JEL classification:
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
- G1 - Financial Economics - - General Financial Markets
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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