Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119334
Authors: 
Drakos, Konstantinos
Year of Publication: 
2009
Series/Report no.: 
Economics of Security Working Paper 8
Abstract: 
Motivated by the investor sentiment literature and assuming that terrorist activity influences investor mood the paper explores whether terrorism exerts a significant negative impact on daily stock market returns for a sample of 22 countries. The employed empirical specifications are based on flexible versions of the World CAPM allowing for autoregressive conditional heteroscedasticity. The results suggest that terrorist activity leads to significantly lower returns on the day of terrorist attack occurrence. In addition, the negative effect of terrorist activity is substantially amplified as the level of psychosocial effects increases. On the one hand this evidence sheds light to the underlying mechanism via which terrorism affects stock markets while on the other hand provides further empirical support for the sentiment effect.
Subjects: 
Sentiment
Terrorism
Stock Market
Panel
Pooled Panel ARCH
JEL: 
C33
E44
G15
Document Type: 
Working Paper

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