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The Contagion Effect of the Terrorist Attacks of the 11th of September

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Author Info

  • Joao Leitao

    (Universidade da Beira Interior)

  • Cristovao Oliveira

    (Universida da Beira Interior)

Abstract

In the context of interdependence of the financial markets, it becomes interesting to analyze the implications associated with the Terrorist Attacks of the 11th of September of 2001, in the USA, in terms of the development of contagion mechanisms between the main international stock exchanges. The sample is subdivided in two periods, in order to capture two different conjectures, that is, the pre-attack period, and the one that is concerned with the post-attack period. The results obtained through the estimation of a vector autoregressive model, incorporating an error correction mechanism, are presented. These results provide the detection of cointegrating relations among the economic variables, in study. A dynamic analysis is done, using exogeneity block tests, in order to check the existence of causality relations, which are defined in a Grangerian sense. For a forecasting purpose, the techniques of the variance decomposition of Cholesky, and of the impulse response functions are used. The occurrence of contagion is ratified by the results, starting from the terrorist attacks in the USA, which yielded a bigger volatility, with positive sign, in the Portuguese, and in the English Stock Exchanges.

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File URL: http://128.118.178.162/eps/fin/papers/0510/0510006.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0510006.

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Length: 27 pages
Date of creation: 14 Oct 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0510006

Note: Type of Document - pdf; pages: 27
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Web page: http://128.118.178.162

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Keywords: Contagion; Stock Exchange; Vector Autoregressive Model.;

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  1. Wongbangpo, Praphan & Sharma, Subhash C., 2002. "Stock market and macroeconomic fundamental dynamic interactions: ASEAN-5 countries," Journal of Asian Economics, Elsevier, vol. 13(1), pages 27-51.
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  7. Rigobon, Roberto, 2003. "On the measurement of the international propagation of shocks: is the transmission stable?," Journal of International Economics, Elsevier, vol. 61(2), pages 261-283, December.
  8. Ratanapakorn, Orawan & Sharma, Subhash C., 2002. "Interrelationships among regional stock indices," Review of Financial Economics, Elsevier, vol. 11(2), pages 91-108.
  9. Pretorius, Elna, 2002. "Economic determinants of emerging stock market interdependence," Emerging Markets Review, Elsevier, vol. 3(1), pages 84-105, March.
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