Terrorist Attacks and Household Trading
59 Pages Posted: 7 Sep 2019 Last revised: 11 Sep 2019
Date Written: August 28, 2019
Using two sources of household data, we show that in response to psychological distress induced by terrorist attacks, households significantly reduce their trading activity and equity ownership, are less likely to enter the market, and increase the value of their savings accounts. We find that the effects of attacks are stronger in months with more casualties and increased news coverage, as well in households with a male head and in those located in the same state as the attack. Further tests on security selection suggest that our findings are consistent with risk shifting and inattention as implied by an anxiety-based utility model.
Keywords: Terrorism, Stock Market Participation, Household Finance, Attention, Anxiety
JEL Classification: G11, G14, H56
Suggested Citation: Suggested Citation