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Terrorism Induced Cross-Market Transmission of Shocks: A Case Study Using Intraday Data

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Listed:
  • Christos Kollias
  • Stephanos Papadamou
  • Costas Siriopoulos

Abstract

Terrorist incidents exert a negative, albeit generally short-lived, impact on markets and equity returns. Given the integration of global financial markets, mega-terrorist events also have a high contagion potential with their shock waves being transmitted across countries and markets. This paper investigates the cross-market transmission of the London Stock Exchange's reaction to the terrorist attacks of 2005. It focuses on how this reaction was transmitted to two other major European stock exchanges: Frankfurt and Paris. To this effect, high frequency data are used and multivariate GARCH models are employed. Findings reported herein indicate that the volatility of stock market returns is increased in all three cases.

Suggested Citation

  • Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2012. "Terrorism Induced Cross-Market Transmission of Shocks: A Case Study Using Intraday Data," Economics of Security Working Paper Series 66, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diweos:diweos66
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.404019.de/diw_econsec0066.pdf
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    References listed on IDEAS

    as
    1. Fernandez, Viviana, 2008. "The war on terror and its impact on the long-term volatility of financial markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 1-26.
    2. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2005. "Long-Term Global Market Correlations," The Journal of Business, University of Chicago Press, vol. 78(1), pages 1-38, January.
    3. Roberto Rigobon, 2002. "Contagion: How to Measure It?," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 269-334 National Bureau of Economic Research, Inc.
    4. Kollias, Christos & Papadamou, Stephanos & Stagiannis, Apostolos, 2011. "Terrorism and capital markets: The effects of the Madrid and London bomb attacks," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 532-541, October.
    5. Christos Kollias & Catherine Kyrtsou & Stephanos Papadamou, 2011. "The Effects of Terrorism and War on the Oil and Prices Stock Indices Relationship," Economics of Security Working Paper Series 57, DIW Berlin, German Institute for Economic Research.
    6. Kollias, Christos & Manou, Efthalia & Papadamou, Stephanos & Stagiannis, Apostolos, 2011. "Stock markets and terrorist attacks: Comparative evidence from a large and a small capitalization market," European Journal of Political Economy, Elsevier, vol. 27(S1), pages 64-77.
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    Cited by:

    1. Andreas Brunhart, 2014. "Stock Market's Reactions to Revelation of Tax Evasion: An Empirical Assessment," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 150(III), pages 161-190, September.

    More about this item

    Keywords

    terrorism; capital markets; contagion; multivariate GARCH;

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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