The Impact of Terrorist Attacks on International Stock Markets

14 Pages Posted: 24 Aug 2010

See all articles by Dirk Brounen

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management; Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement; Maastricht University - Department of Finance; Utrecht University - School of Economics

Abstract

We examine the effects of terrorist attacks on stock markets, using a dataset that covers all significant events and that directly relate to the major economies of the world. Our event study suggests that terrorist attacks produce mildly negative price effects. We compare these price reactions to those from an alternative type of unanticipated disaster, earthquakes, and find that price declines following terror attacks are more pronounced. However, in both cases prices rebound within the first week of the aftermath. We also compare price responses internationally and for separate industries, and find that reactions are strongest for local markets and for industries that are directly affected by the attack. Our results suggest that financial markets react strongly to terror events but then recover swiftly and soon return to business as usual. The September 11th attacks turn out to be the only event that caused long-term effects on financial markets, especially in terms of industries' systematic risk.

Suggested Citation

Brounen, Dirk and Derwall, Jeroen, The Impact of Terrorist Attacks on International Stock Markets. European Financial Management, Vol. 16, No. 4, pp. 585-598, September 2010, Available at SSRN: https://ssrn.com/abstract=1662694 or http://dx.doi.org/10.1111/j.1468-036X.2009.00502.x

Dirk Brounen (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

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Erasmus Research Institute of Management (ERIM) ( email )

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HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/dbrounen

Tinbergen Institute ( email )

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Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement ( email )

FEBA
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Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.corporate-engagement.com/

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
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Utrecht, +31 30 253 7373 3584 EC
Netherlands

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