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The Effects of War Risk on U.S. Financial Markets

  • Roberto Rigobon
  • Brian Sack

This paper measures the effects of the risk of war on nine U.S. financial variables using a heteroskedasticity-based estimation technique. The results indicate that increases in the risk of war cause declines in Treasury yields and equity prices, a widening of lower-grade corporate spreads, a fall in the dollar, and a rise in oil prices. This war risk factor' accounted for a considerable portion of the variance of these financial variables over the ten weeks leading up to the onset of war with Iraq.

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File URL: http://www.nber.org/papers/w9609.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9609.

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Date of creation: Apr 2003
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Publication status: published as Rigobon, Roberto & Sack, Brian, 2005. "The effects of war risk on US financial markets," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1769-1789, July.
Handle: RePEc:nbr:nberwo:9609
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  1. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction Of Monetary Policy To The Stock Market," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 639-669, May.
  2. Steven J. Davis & Kevin M. Murphy & Robert H. Topel, 2006. "War in Iraq versus Containment," NBER Working Papers 12092, National Bureau of Economic Research, Inc.
  3. Gabriele Fiorentini & Enrique Sentana Iváñez, 1997. "Identification, estimation and testing of conditionally heteroskedastic factor models," Working Papers. Serie AD 1997-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  5. Rigobon, Roberto, 2002. "The curse of non-investment grade countries," Journal of Development Economics, Elsevier, vol. 69(2), pages 423-449, December.
  6. Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
  7. Martin D. D. Evans & Richard K. Lyons, 2003. "How is Macro News Transmitted to Exchange Rates?," NBER Working Papers 9433, National Bureau of Economic Research, Inc.
  8. Andrew Leigh & Justin Wolfers & Eric Zitzewitz, 2003. "What Do Financial Markets Think of War in Iraq?," NBER Working Papers 9587, National Bureau of Economic Research, Inc.
  9. William D. Nordhaus, 2002. "The Economic Consequences of a War in Iraq," NBER Working Papers 9361, National Bureau of Economic Research, Inc.
  10. Siklos, Pierre L. & Bohl, Martin T. & Werner, Thomas, 2003. "Did the Bundesbank React to Stock Price Movements?," Discussion Paper Series 1: Economic Studies 2003,14, Deutsche Bundesbank, Research Centre.
  11. William D. Nordhaus, 2002. "The Economic Consequences of a War with Iraq," Cowles Foundation Discussion Papers 1387, Cowles Foundation for Research in Economics, Yale University.
  12. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
  13. Amihud, Yakov & Wohl, Avi, 2004. "Political news and stock prices: The case of Saddam Hussein contracts," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1185-1200, May.
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