Digest Finance
 

Analyzing the Impact of Terrorist Attacks on Stock Index Dynamics

Vol. 22, Iss. 2, JUNE 2017

PDF  Article PDF Version

Received: 20 January 2017

Received in revised form: 6 February 2017

Accepted: 20 February 2017

Available online: 15 June 2017

Subject Heading: SECURITIES AND FINANCIAL MARKETS

JEL Classification: G14

Pages: 206-221

https://doi.org/10.24891/el.22.2.206

Volodin S.N. National Research University Higher School of Economics, Moscow, Russian Federation svolodin@hse.ru

Mikhalev A.G. National Research University Higher School of Economics, Moscow, Russian Federation agmikhalev@edu.hse.ru

Importance The article considers the features of terrorist attacks, which have an impact on stock indices. It analyzes 117 terrorist attacks committed in different countries within 1988–2016.
Objectives The research assesses how terrorist attacks influence stock index trends. It will enable market agents make better decisions and avoid excessive losses, reduce negative reaction of the market in general, and help the national financial system minimize the adverse consequences of terrorist attacks.
Methods We employ historical-logical, graphical, statistical methods and a comparative analysis to describe an impact of different aspects of terrorist attacks on the dynamics of stock indices. We also systematize analytical information in this area.
Results The findings show that the impact of terrorist attacks on stock index dynamics depends on various factors, i.e. the number of victims, level of country’s economic development, day of terrorist attack, etc. We found out that the market trend before a terrorist attack had a significant influence on stock index movement after the attack. Terrorist attacks influence industries in a different way.
Conclusions and Relevance Terrorist attacks mostly have a dramatic impact on the dynamics of stock indices. However, the influence is often insignificant and impermanent. Therefore, investors should refrain from ill-judged financial decisions to avoid losses. The findings may be useful for investors, market makers and other market participants.

Keywords: stock market, stock index, terrorist attack, dynamics, global threat

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