Diversifying away the Risk of War and Cross-Border Political Crisis

56 Pages Posted: 21 Nov 2012 Last revised: 26 Feb 2016

See all articles by Ayman Omar

Ayman Omar

University of Leicester

Tomasz Piotr Wisniewski

Open University, UK

Sandra Nolte (Lechner)

Lancaster University Management School

Date Written: February 19, 2015

Abstract

This paper investigates the behavior of crude oil prices, government bonds and stock market indices around outbreaks of severe international crises and wars. Using a constant-mean-return event study, we show that these events are associated with positive and significant abnormal returns on oil and bonds, which means that these two asset classes can potentially shelter shareholders from plummeting equity values during international crises. A formal safe haven analysis confirms this insight. Such price movements may reflect a reallocation of funds across asset classes in response to the events, as well as shifts in the demand for oil due to precautionary, speculative and military motives. We also calculate the weights for optimal portfolios, which could provide insurance against conflict risk.

Keywords: Crude Oil Price, Safe Haven, International Crises, Wars

JEL Classification: G11, G12, Q34

Suggested Citation

Omar, Ayman and Wisniewski, Tomasz Piotr and Nolte (Lechner), Sandra, Diversifying away the Risk of War and Cross-Border Political Crisis (February 19, 2015). Available at SSRN: https://ssrn.com/abstract=2177956 or http://dx.doi.org/10.2139/ssrn.2177956

Ayman Omar

University of Leicester ( email )

Fielding Johnson Building
University Road
Leicester, LE1 7RH
United Kingdom

Tomasz Piotr Wisniewski (Contact Author)

Open University, UK ( email )

Walton Hall
Milton Keynes, Buckinghamshire MK7 6AA
United Kingdom

Sandra Nolte (Lechner)

Lancaster University Management School ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

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