Armageddon and the Stock Market: US, Canadian and Mexican Market Responses to the 1962 Cuban Missile Crisis

53 Pages Posted: 20 Jul 2020

See all articles by Richard C. K. Burdekin

Richard C. K. Burdekin

Claremont McKenna College - Robert Day School of Economics and Finance

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Multiple version iconThere are 2 versions of this paper

Date Written: July 9, 2020

Abstract

The threat of nuclear annihilation has never been higher than in 1962, when US President Kennedy and Soviet Premier Khruschev engaged in brinkmanship over the placement of Soviet missiles in Cuba during October 16-28. Although the resolution of the crisis was followed by a sustained recovery in the US, Canadian and Mexican stock markets, the stock market impact of the crisis itself, at first glance, seems relatively limited. Notwithstanding the fact that empirical analysis of 1962 US market data reveal a significant break on October 23, 1962, which is the day after President Kennedy’s television address about the Cuban missile crisis, the drop on this day was smaller than prior one day declines seen in the earlier part of the year. When we focus on the 1% left tail of the distribution, that is, just the very largest negative returns, a different story emerges, however. US uncertainty is now seen to have a significant negative impact on returns across each of the US, Canadian and Mexican markets. Moreover, the size of the negative response to the rise in uncertainty is comparable in all three cases notwithstanding the fact the pre-crisis Mexican stock market trajectory had been very different from that seen in the United States and Canada.

Keywords: Cuban Missile Crisis, Stock markets, Canada, Mexico, United States

JEL Classification: G15

Suggested Citation

Burdekin, Richard C. K. and Siklos, Pierre L., Armageddon and the Stock Market: US, Canadian and Mexican Market Responses to the 1962 Cuban Missile Crisis (July 9, 2020). CAMA Working Paper No. 65/2020, Available at SSRN: https://ssrn.com/abstract=3646624 or http://dx.doi.org/10.2139/ssrn.3646624

Richard C. K. Burdekin

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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