Terror Attacks, Foreign Exchange Markets, and Class Dynamics

23 Pages Posted: 7 Aug 2018 Last revised: 14 Jan 2019

See all articles by Kristis Hassapis

Kristis Hassapis

University of Cyprus - Department of Economics

Savvas Katsikidis

University of Cyprus

Stelios Markoulis

University of Cyprus - Department of Public and Business Administration; Frederick University; Cyprus International Institute of Management (CIIM)

Date Written: January 10, 2019

Abstract

This paper examines the effect of major terror attacks of the twenty-first century on the forex market. The “event study” methodology is used to assess whether, following a terror attack, the currency of the country attacked experienced a negative effect. It also examines whether this effect is permanent or transitory and whether there are differences between recent and earlier attacks. Results suggest that earlier events cause substantial negative “event-day” returns for the specific currency, which seem to persist for some days. This is particularly evident in pairs involving the currency of the country attacked and “safe heaven” currencies (e.g. Yen, Swiss Franc). The paper also documents that terror attacks that occurred recently appear to have very little influence on the currency pairs examined, thus suggesting that, over time, market participants have learnt to better assess such events. Given our findings, and particularly the one suggesting that the effects of terror attacks on the foreign exchange market, and hence the economy, are transitory, it would appear that class dynamics are not likely to be affected by them; forex markets appear to be particularly efficient in dealing with such events, absorbing short-term shocks and continuing to function effectively, thus maintaining economic stability.

Keywords: Event-study methodology, Terrorism, Foreign exchange market, Market reaction, Class dynamics

Suggested Citation

Hassapis, Kristis and Katsikidis, Savvas and Markoulis, Stelios, Terror Attacks, Foreign Exchange Markets, and Class Dynamics (January 10, 2019). Available at SSRN: https://ssrn.com/abstract=3215773 or http://dx.doi.org/10.2139/ssrn.3215773

Kristis Hassapis

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus

Savvas Katsikidis

University of Cyprus ( email )

75 Kallipoleos Street
Nicosia CY 1678, Nicosia P.O. Box 2
Cyprus

Stelios Markoulis (Contact Author)

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS

Frederick University ( email )

7, Y. Frederickou Str.
Pallouriotisa
Nicosia, 1036
Cyprus

Cyprus International Institute of Management (CIIM) ( email )

P.O Box 20378
Aglandjia
Nicosia, CY-2151
Cyprus

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