Political News and Stock Prices: The Case of Saddam Hussein Contracts

Abstract:     
This paper studies the association between the market's expectations of Saddam Hussein's fall from power, as reflected in "Saddam contract" prices, and stock prices, oil prices and exchange rates. During the war, a rise in the probability of Saddam's fall, which also indicated a speedy end to the war, positively and significantly affected stock prices (R2 was over 40%), strengthened the dollar against the Euro, and lowered oil prices. Before the war, a rise in the probability of Saddam's fall, which may also have indicated the probability of a costly war breaking out, lowered stock prices, which adjusted gradually to this information.

Number of Pages in PDF File: 26

Keywords: political risk, war and the stock market, war and exchange rates

JEL Classification: E6, G1, G14, H56

working papers series