IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_10960.html
   My bibliography  Save this paper

The Stock Market Effects of Islamist versus Non-Islamist Terror

Author

Listed:
  • Gan Jin
  • Md Rafiul Karim
  • Günther G. Schulze

Abstract

We are the first to analyze the effect of terror on stock markets by terror ideology. Surprisingly, we find that Islamist terror attacks created significant negative abnormal returns in American and European markets, but the stock market effects of other terror attacks were almost nil. For our sample of all 124 terrorist attacks in the US and Europe in the period 1994 to 2018 that caused at least five fatalities or ten injured people, we show that Islamist terror attacks are given significantly more air time (also after controlling for attack characteristics and the media pressure of competing news stories). This, however, explains only part of the differential effect of Islamist attacks on the stock markets.

Suggested Citation

  • Gan Jin & Md Rafiul Karim & Günther G. Schulze, 2024. "The Stock Market Effects of Islamist versus Non-Islamist Terror," CESifo Working Paper Series 10960, CESifo.
    • Handle: RePEc:ces:ceswps:_10960
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10960.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ruben Durante & Ekaterina Zhuravskaya, 2018. "Attack When the World Is Not Watching? US News and the Israeli-Palestinian Conflict," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1085-1133.
    2. Bertrand Maillet & Thierry Michel, 2005. "The Impact of the 9/11 Events on the American and French Stock Markets," Post-Print hal-00308978, HAL.
    3. Drakos, Konstantinos, 2010. "Terrorism activity, investor sentiment, and stock returns," Review of Financial Economics, Elsevier, vol. 19(3), pages 128-135, August.
    4. Abadie, Alberto & Gardeazabal, Javier, 2008. "Terrorism and the world economy," European Economic Review, Elsevier, vol. 52(1), pages 1-27, January.
    5. Berrebi, Claude & Klor, Esteban F., 2008. "Are Voters Sensitive to Terrorism? Direct Evidence from the Israeli Electorate," American Political Science Review, Cambridge University Press, vol. 102(3), pages 279-301, August.
    6. Jussi Nikkinen & Sami Vähämaa, 2010. "Terrorism and Stock Market Sentiment," The Financial Review, Eastern Finance Association, vol. 45(2), pages 263-275, May.
    7. Bertrand B. Maillet & Thierry L. Michel, 2005. "The Impact of the 9/11 Events on the American and French Stock Markets," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 597-611, August.
    8. Christian Bjørnskov, 2012. "How Does Social Trust Affect Economic Growth?," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1346-1368, April.
    9. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1101-1136, December.
    10. Dreher, Axel & Krieger, Tim & Meierrieks, Daniel, 2011. "Hit and (they will) run: The impact of terrorism on migration," Economics Letters, Elsevier, vol. 113(1), pages 42-46, October.
    11. Jetter, Michael, 2017. "The effect of media attention on terrorism," Journal of Public Economics, Elsevier, vol. 153(C), pages 32-48.
    12. José G. Montalvo, 2011. "Voting after the Bombings: A Natural Experiment on the Effect of Terrorist Attacks on Democratic Elections," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1146-1154, November.
    13. Kis-Katos, Krisztina & Liebert, Helge & Schulze, Günther G., 2014. "On the heterogeneity of terror," European Economic Review, Elsevier, vol. 68(C), pages 116-136.
    14. Stephens-Davidowitz, Seth, 2014. "The cost of racial animus on a black candidate: Evidence using Google search data," Journal of Public Economics, Elsevier, vol. 118(C), pages 26-40.
    15. Daniel G. Arce, 2019. "On the human consequences of terrorism," Public Choice, Springer, vol. 178(3), pages 371-396, March.
    16. Charles, Amelie & Darne, Olivier, 2006. "Large shocks and the September 11th terrorist attacks on international stock markets," Economic Modelling, Elsevier, vol. 23(4), pages 683-698, July.
    17. Akay, Alpaslan & Bargain, Olivier & Elsayed, Ahmed, 2020. "Global terror, well-being and political attitudes," European Economic Review, Elsevier, vol. 123(C).
    18. Abel Brodeur, 2018. "The Effect of Terrorism on Employment and Consumer Sentiment: Evidence from Successful and Failed Terror Attacks," American Economic Journal: Applied Economics, American Economic Association, vol. 10(4), pages 246-282, October.
    19. Apergis, Emmanuel & Apergis, Nicholas, 2016. "The 11/13 Paris terrorist attacks and stock prices: The case of the international defense industry," Finance Research Letters, Elsevier, vol. 17(C), pages 186-192.
    20. S Brock Blomberg & Gregory D Hess & Daniel YJ Tan, 2011. "Terrorism and the Economics of Trust," Journal of Peace Research, Peace Research Institute Oslo, vol. 48(3), pages 383-398, May.
    21. Arin, K. Peren & Ciferri, Davide & Spagnolo, Nicola, 2008. "The price of terror: The effects of terrorism on stock market returns and volatility," Economics Letters, Elsevier, vol. 101(3), pages 164-167, December.
    22. Chesney, Marc & Reshetar, Ganna & Karaman, Mustafa, 2011. "The impact of terrorism on financial markets: An empirical study," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 253-267, February.
    23. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    24. Drakos, Konstantinos, 2004. "Terrorism-induced structural shifts in financial risk: airline stocks in the aftermath of the September 11th terror attacks," European Journal of Political Economy, Elsevier, vol. 20(2), pages 435-446, June.
    25. Thomas Eisensee & David Strömberg, 2007. "News Droughts, News Floods, and U. S. Disaster Relief," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 693-728.
    26. Eldor, Rafi & Melnick, Rafi, 2004. "Financial markets and terrorism," European Journal of Political Economy, Elsevier, vol. 20(2), pages 367-386, June.
    27. Goel, Sanjay & Cagle, Seth & Shawky, Hany, 2017. "How vulnerable are international financial markets to terrorism? An empirical study based on terrorist incidents worldwide," Journal of Financial Stability, Elsevier, vol. 33(C), pages 120-132.
    28. Melnick, Rafi & Eldor, Rafi, 2010. "Small investment and large returns: Terrorism, media and the economy," European Economic Review, Elsevier, vol. 54(8), pages 963-973, November.
    29. Llussá, Fernanda & Tavares, José, 2011. "Which terror at which cost? On the economic consequences of terrorist attacks," Economics Letters, Elsevier, vol. 110(1), pages 52-55, January.
    30. Getmansky, Anna & Zeitzoff, Thomas, 2014. "Terrorism and Voting: The Effect of Rocket Threat on Voting in Israeli Elections," American Political Science Review, Cambridge University Press, vol. 108(3), pages 588-604, August.
    31. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
    32. Khusrav Gaibulloev & Todd Sandler, 2019. "What We Have Learned about Terrorism since 9/11," Journal of Economic Literature, American Economic Association, vol. 57(2), pages 275-328, June.
    33. Dirk Brounen & Jeroen Derwall, 2010. "The Impact of Terrorist Attacks on International Stock Markets," European Financial Management, European Financial Management Association, vol. 16(4), pages 585-598, September.
    34. Gassebner, Martin & Jong-A-Pin, Richard & Mierau, Jochen O., 2008. "Terrorism and electoral accountability: One strike, you're out!," Economics Letters, Elsevier, vol. 100(1), pages 126-129, July.
    35. Paschalis Arvanitidis & Athina Economou & Christos Kollias, 2016. "Terrorism’s effects on social capital in European countries," Public Choice, Springer, vol. 169(3), pages 231-250, December.
    36. Axel Dreher & Martin Gassebner & Lars-H. Siemers, 2010. "Does Terrorism Threaten Human Rights? Evidence from Panel Data," Journal of Law and Economics, University of Chicago Press, vol. 53(1), pages 65-93, February.
    37. Serhan Cevik & John Ricco, 2020. "Shock and awe? Fiscal consequences of terrorism," Empirical Economics, Springer, vol. 58(2), pages 723-748, February.
    38. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. J. W.B. Bos & M. Frömmel & M. Lamers, 2013. "FDI, Terrorism and the Availability Heuristic for U.S. Investors before and after 9/11," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 13/850, Ghent University, Faculty of Economics and Business Administration.
    2. Fatma Ben Moussa & Mariem Talbi, 2019. "Stock Market Reaction to Terrorist Attacks and Political Uncertainty: Empirical Evidence from the Tunisian Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 48-64.
    3. Corbet, Shaen & Gurdgiev, Constantin & Meegan, Andrew, 2018. "Long-term stock market volatility and the influence of terrorist attacks in Europe," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 118-131.
    4. Gok, Ibrahim Yasar & Demirdogen, Yavuz & Topuz, Sefa, 2020. "The impacts of terrorism on Turkish equity market: An investigation using intraday data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    5. Chaudhry, Naukhaiz & Roubaud, David & Akhter, Waheed & Shahbaz, Muhammad, 2018. "Impact of terrorism on stock markets: Empirical evidence from the SAARC region," Finance Research Letters, Elsevier, vol. 26(C), pages 230-234.
    6. Emilio Colombo & Valentina Rotondi & Luca Stanca, 2022. "The Day After the Bomb: Well-Being Effects of Terrorist Attacks in Europe," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 160(1), pages 115-132, February.
    7. Anastasios Zopiatis & Christos S. Savva & Neophytos Lambertides & Michael McAleer, 2016. "Tourism stocks in times of crises: An econometric investigation of non-macro factors," Documentos de Trabajo del ICAE 2016-18, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    8. Bevilacqua, Mattia & Morelli, David & Uzan, Paola Sultana Renée, 2021. "Striking the implied volatility of US drone companies," International Review of Financial Analysis, Elsevier, vol. 77(C).
    9. Friedrich Schneider & Tilman Brück & Daniel Meierrieks, 2010. "The Economics of Terrorism and Counter-Terrorism: A Survey (Part II)," Discussion Papers of DIW Berlin 1050, DIW Berlin, German Institute for Economic Research.
    10. Christos Kollias & Stephanos Papadamou & Vangelis Arvanitis, 2013. "Does Terrorism Affect the Stock‐Bond Covariance? Evidence from European Countries," Southern Economic Journal, John Wiley & Sons, vol. 79(4), pages 832-848, April.
    11. Michael Jetter, 2017. "Mediated Terrorism: US News and Al-Qaeda Attacks," CESifo Working Paper Series 6804, CESifo.
    12. 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.
    13. Anastasios Zopiatis & Christos S. Savva & Neophytos Lambertides & Michael McAleer, 2017. "Tourism Stocks in Times of Crises: An Econometric Investigation of Unexpected Non-macroeconomic Factors," Tinbergen Institute Discussion Papers 17-052/III, Tinbergen Institute.
    14. Kollias, Christos & Kyrtsou, Catherine & Papadamou, Stephanos, 2013. "The effects of terrorism and war on the oil price–stock index relationship," Energy Economics, Elsevier, vol. 40(C), pages 743-752.
    15. Halkos, George & Managi, Shunsuke & Zisiadou, Argyro, 2017. "Analyzing the determinants of terrorist attacks and their market reactions," Economic Analysis and Policy, Elsevier, vol. 54(C), pages 57-73.
    16. Mnasri, Ayman & Nechi, Salem, 2016. "Impact of terrorist attacks on stock market volatility in emerging markets," Emerging Markets Review, Elsevier, vol. 28(C), pages 184-202.
    17. Narayan, S. & Le, T.-H. & Sriananthakumar, S., 2018. "The influence of terrorism risk on stock market integration: Evidence from eight OECD countries," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 247-259.
    18. Omar, Ayman M.A. & Lambe, Brendan J & Wisniewski, Tomasz Piotr, 2021. "Perceptions of the threat to national security and the stock market," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 504-522.
    19. Alessandro Belmonte, 2022. "Punishing or rallying ‘round the flag? Heterogeneous effects of terrorism in South Tyrol," Kyklos, Wiley Blackwell, vol. 75(4), pages 536-563, November.
    20. Najam, Najam Ul Sabeeh & Mehmood, Arshad Mehmood, 2019. "The economic cost of terrorism and natural disasters: A deeper analysis of the financial market markets of Pakistan," MPRA Paper 92278, University Library of Munich, Germany.

    More about this item

    Keywords

    terror; stock market; event studies; Islamist terror; media;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_10960. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.