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Do terrorist attacks harm financial markets? A meta-analysis of event studies and the determinants of adverse impact

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  • Park, Jin Suk
  • Newaz, Mohammad Khaleq

Abstract

This study reassesses the common belief that terrorist attacks destabilize financial markets, by analyzing event studies covering 10,576 individual attacks and 141,665 nonattack days across 72 stock and foreign exchange markets in 36 countries from 1996 to 2015. The meta-analysis reveals that terrorist attacks have almost no impact on stock markets and only marginal effect on foreign exchange markets, though effects vary with individual attacks and markets. The number of fatalities slightly raises the likelihood of adverse impact, while the number of wounded and the magnitude of recent attacks slightly decrease it. The markets are hit less hard when attack-day returns are positive, but variance is more likely to increase in the short term. Also, the impact of an attack is stronger when the market is performing extremely well or poorly.

Suggested Citation

  • Park, Jin Suk & Newaz, Mohammad Khaleq, 2018. "Do terrorist attacks harm financial markets? A meta-analysis of event studies and the determinants of adverse impact," Global Finance Journal, Elsevier, vol. 37(C), pages 227-247.
    • Handle: RePEc:eee:glofin:v:37:y:2018:i:c:p:227-247
    DOI: 10.1016/j.gfj.2018.06.003
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    Cited by:

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    4. Liu, Yiye & Han, Liyan & Wu, You & Yin, Libo, 2022. "Do terrorist attacks matter for currency excess returns?," Finance Research Letters, Elsevier, vol. 49(C).
    5. Alam, Ahmed W. & Houston, Reza & Farjana, Ashupta, 2023. "Geopolitical risk and corporate investment: How do politically connected firms respond?," Finance Research Letters, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    Terrorism; Terrorist attack; Stock market; Foreign exchange market; Event studies; Quantile regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General

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