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The war puzzle: contradictory effects of international conflicts on stock markets

Author

Listed:
  • Amelie Brune

  • Thorsten Hens

  • Marc Rieger

  • Mei Wang

Abstract

We study stock market reactions to large international military conflicts since World War II. Using a news analysis proxy for the estimated likelihood that a conflict will result in a war, we find that an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them. In cases when a war starts surprisingly, however, the outbreak of a war decreases stock prices. We show that this puzzle cannot be explained by risk or ambiguity aversion or by expectations about a quick end of the war. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Amelie Brune & Thorsten Hens & Marc Rieger & Mei Wang, 2015. "The war puzzle: contradictory effects of international conflicts on stock markets," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 62(1), pages 1-21, March.
    • Handle: RePEc:spr:inrvec:v:62:y:2015:i:1:p:1-21
    DOI: 10.1007/s12232-014-0215-7
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    References listed on IDEAS

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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