Small Investment and Large Returns: Terrorism, Media and the Economy

20 Pages Posted: 10 Jan 2007 Last revised: 24 Nov 2013

See all articles by Rafi Melnick

Rafi Melnick

Interdisciplinary Center Herzliya

Rafi (Rafael) Eldor

Interdisciplinary Center (IDC) Herzliya - Arison School of Business

Date Written: December 1, 2006

Abstract

This study investigates the role of the media to the impact of terrorism on the economy. A unique data set of 3045 articles published in major Israeli newspapers covering 180 terrorist attacks was used to evaluate their impact on the Tel Aviv stock market in 2002. We perform an econometric analysis of editorial decision making regarding the articles' placement and print characteristics: number of articles, front page, pictures and large headlines. We found that media coverage is the main channel by which terrorism produces economic damage: i.e., media coverage was the only explanatory variable found to be significant in the equation explaining the economic damage incurred. The economic damage caused increases monotonically with the amount media coverage. For a given terror attack, the greater its media coverage, the greater the economic damage caused. We also found that the impact of the media coverage of terrorism on the economy decreased over time.

Keywords: Terror, Terrorism, Media, Stock markets, September 11

JEL Classification: G10, G14

Suggested Citation

Melnick, Rafi and Eldor, Rafi (Rafael), Small Investment and Large Returns: Terrorism, Media and the Economy (December 1, 2006). European Economic Review, 2010. Available at SSRN: https://ssrn.com/abstract=955623 or http://dx.doi.org/10.2139/ssrn.955623

Rafi Melnick (Contact Author)

Interdisciplinary Center Herzliya ( email )

P.O. Box 167
Herzliya, 46150
Israel

Rafi (Rafael) Eldor

Interdisciplinary Center (IDC) Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-952-7234 (Phone)
972-9-956-3616 (Fax)

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