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An Empirical Analysis of Terrorism and Stock Market Spillovers: The Case of Spain

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  • Ricardo Laborda
  • Jose Olmo

Abstract

This article assesses the spillover effects between terrorist activity and Spanish stock market returns for the period 1993–2017 . We construct a daily terror index that reflects the terrorist activity of different types of perpetrators: domestic terrorism (ETA) and international terrorism linked to Islamic extremism. Our static analysis shows that connectedness is important, as it explains about half of the forecast error variance; most of it is attributed to shocks from terrorist events on stock market return forecasts. Our dynamic analysis also uncovers an increase in spillover effects between the early period characterised by ETA terrorist attacks and the recent past characterised by Islamic terrorist attacks.

Suggested Citation

  • Ricardo Laborda & Jose Olmo, 2021. "An Empirical Analysis of Terrorism and Stock Market Spillovers: The Case of Spain," Defence and Peace Economics, Taylor & Francis Journals, vol. 32(1), pages 68-86, January.
    • Handle: RePEc:taf:defpea:v:32:y:2021:i:1:p:68-86
    DOI: 10.1080/10242694.2019.1617601
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    Cited by:

    1. Bouri, Elie & Hammoud, Rami & Kassm, Christina Abou, 2023. "The effect of oil implied volatility and geopolitical risk on GCC stock sectors under various market conditions," Energy Economics, Elsevier, vol. 120(C).

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