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FDI, terrorism and the availability heuristic for U.S. investors before and after 9/11

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  • Bos J.W.B.
  • Frömmel M.
  • Lamers M.A.J.

    (GSBE)

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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Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 047.

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Date of creation: 2013
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Handle: RePEc:unm:umagsb:2013047

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Keywords: Empirical Studies of Trade; Information and Market Efficiency; Event Studies; International Financial Markets;

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