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Risk, Uncertainty, and the Perceived Threat of Terrorist Attacks: Evidence of Flight-to-Quality

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  • Michael S. Pagano

    (Villanova University, Villanova School of Business, 800 Lancaster Avenue, Villanova, PA 19085, USA)

  • T. Shawn Strother

    (Zayed University, College of Business Sciences, Abu Dhabi, United Arab Emirates)

Abstract

Information provided by the US Department of Homeland Security regarding potential terrorist attacks significantly affects US Treasury securities markets. When the government announces heightened terror alert levels, investors' perceptions of risk increase and investors purchase 1-month and 1-year Treasury bills and 3-year, 5-year, 7-year, and 10-year US Treasuries in a "flight-to-quality" episode. Partial anticipation of increased threat level announcements is stronger than the anticipation of announcements regarding the federal funds rate during the 10 days prior to an announcement.

Suggested Citation

  • Michael S. Pagano & T. Shawn Strother, 2013. "Risk, Uncertainty, and the Perceived Threat of Terrorist Attacks: Evidence of Flight-to-Quality," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-25.
    • Handle: RePEc:wsi:qjfxxx:v:03:y:2013:i:02:n:s2010139213500079
    DOI: 10.1142/S2010139213500079
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    References listed on IDEAS

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    1. Tilman Br�ck & Bengt-Arne Wickstr�m, 2004. "The Economic Consequences of Terror: A Brief Survey," HiCN Working Papers 03, Households in Conflict Network.
    2. Patrick Lenain & Marcos Bonturi & Vincent Koen, 2002. "The Economic Consequences of Terrorism," OECD Economics Department Working Papers 334, OECD Publishing.
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    Cited by:

    1. Mariya Gubareva & Maria Rosa Borges, 2016. "Typology for flight-to-quality episodes and downside risk measurement," Applied Economics, Taylor & Francis Journals, vol. 48(10), pages 835-853, February.
    2. Emily Gallagher & Sean Collins, 2016. "Money Market Funds and the Prospect of a US Treasury Default," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-44, March.

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