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The Impact of Terrorism on Financial Markets: An Empirical Study

Author

Listed:
  • Ensar AGIRMAN
  • Muhammet OZCAN
  • Omer YILMAZ

Abstract

Uncertainty is one of the factors negatively affecting financial markets. Terrorism and terrorist activities are located in the factors that trigger this uncertainty. The purpose of this study is to investigate the impact of the uncertainties created by terrorist activities on financial markets. In this context, the effects of terrorism on financial market indexes for 35 countries for the period of 2003-2011 are studied. The Global Terrorism Index derived from Vision of Humanity and annual average stock market indexes obtained from World Federation of Exchanges are used. In this regard, firstly, unit root tests were applied to investigate whether variables are stationary or not. Then, Pedroni and Kao cointegration tests were conducted and a long term relationship between variables were found. A causual relationship either from stock markets to terrorist incidents or from terrorist incidents to stock markets has not been observed in the Granger Causality analysis. The results of the analysis shows that the short term effects of terrorist incidents on stock markets are fixed by the market mechanism in the long term.

Suggested Citation

  • Ensar AGIRMAN & Muhammet OZCAN & Omer YILMAZ, 2014. "The Impact of Terrorism on Financial Markets: An Empirical Study," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 8(2), pages 99-117.
    • Handle: RePEc:bdd:journl:v:8:y:2014:i:2:p:99-117
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    Citations

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    Cited by:

    1. Sulehri, Fiaz Ahmad & Ali, Amjad, 2020. "Impact of Political Uncertainty on Pakistan Stock Exchange (1990-1999): An Event Study Approach," MPRA Paper 104623, University Library of Munich, Germany.
    2. Audi, Marc & Sulehri, Fiaz Ahmad & Ali, Amjad & Al-Masri, Razan, 2022. "The role of terrorist events in determining stock returns in Pakistan: covering most vibrant era 2003-2013," MPRA Paper 115167, University Library of Munich, Germany, revised 26 Oct 2022.

    More about this item

    Keywords

    Terrorism; Financial Markets; Panel Data Models;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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