Political News and Stock Prices: The Case of Saddam Hussein Contracts
26 Pages Posted: 12 Nov 2008
Date Written: July 2003
This paper studies the association between the market s expectations of Saddam Hussein s fall from power, 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, was positively and significantly associated with stock prices, strengthened the dollar against the Euro, and lowered oil prices. Before the war, a rise in the probability of Saddam s fall, which may have also indicated the probability of a costly war breaking out, lowered stock prices, which adjustment gradually to this information.
Keywords: political risk, war and the stock market, war and exchange rates
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