The Impact of Unsuccessful Pirate Attacks on Financial Markets: A Confirmation of Leeson's Reputation-Building Theory

Posted: 14 Feb 2016 Last revised: 4 Jan 2018

See all articles by Ariel R. Belasen

Ariel R. Belasen

Southern Illinois University at Edwardsville - Department of Economics

Ali M. Kutan

Southern Illinois University at Edwardsville

Alan T. Belasen

State University of New York (SUNY), Empire State College

Date Written: February 3, 2016

Abstract

This paper examines the effect of unsuccessful Somali pirate attacks on financial-market returns in the Arabian Peninsula. Specifically, it tests Peter Leeson's (2010a) reputation-building theory of pirate behavior. According to this theory, unsuccessful pirate attacks create the expectation of future pirate attacks, as pirates attempt to maintain and build their reputation for effective piracy. We test this theory empirically by studying the relationship between pirate attacks and financial-market returns in the Arabian Peninsula. The result of our empirical test supports Leeson's theory: unsuccessful pirate attacks are associated with lower financial-market returns, suggesting that market participants expect unsuccessful pirate attacks to be followed by future pirate attacks.

Keywords: Reputation-Building, Pirates, Expectations, Financial Markets

JEL Classification: F02, F23, G15

Suggested Citation

Belasen, Ariel R. and Kutan, Ali M. and Belasen, Alan, The Impact of Unsuccessful Pirate Attacks on Financial Markets: A Confirmation of Leeson's Reputation-Building Theory (February 3, 2016). Available at SSRN: https://ssrn.com/abstract=2727336 or http://dx.doi.org/10.2139/ssrn.2727336

Ariel R. Belasen (Contact Author)

Southern Illinois University at Edwardsville - Department of Economics ( email )

Edwardsville, IL 62026-1102
United States

Ali M. Kutan

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

HOME PAGE: http://https://ideas.repec.org/e/pku30.html

Alan Belasen

State University of New York (SUNY), Empire State College ( email )

111 West Ave
Saratoga Springs, NY 12866
United States
5185804720 (Phone)
5185804720 (Fax)

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