Wealth Effects of the SEC's 'Terror Tool'

Abstract

In summer 2007, the Securities and Exchange Commission (SEC) published an online tool with information on firms doing business in State Sponsor of Terrorism countries. We take sides with those arguing that for moral reasons, investors will have traded on the information provided in the tool by selling stocks of mentioned firms. Contrary to our expectation, we find no evidence of a negative stock price reaction during the time the tool was posted online but do find such reaction subsequent to the tool’s publication. Additionally, we provide evidence for the notion that stigmatization is not transitory.

Keywords: SEC, sin stocks, state sponsors of terrorism, stock price reaction

JEL Classification: G11, G12, G14, G18