Impact of terrorist attacks on financial markets

Cam, M 2007, Impact of terrorist attacks on financial markets, Doctor of Philosophy (PhD), Economics, Finance and Marketing, RMIT University.


Document type: Thesis
Collection: Theses

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Title Impact of terrorist attacks on financial markets
Author(s) Cam, M
Year 2007
Abstract This thesis investigates the impact of terrorist attacks on equity financial markets. It employs traditional event study approaches to identify and measure stock market reactions to terrorist attacks in New York on September 11, 2001, and subsequent terrorist attacks in Madrid, London and Bali. Three studies are presented. The first study investigates the impact of September 11 on the tenant firms within the World Trade Centre. The second study investigates industry effects following the Madrid and London bombings. The third study undertakes a sensitivity analysis to different event study techniques over the various terrorist attacks.

The results from the three studies suggest that equity markets can remain efficient in the wake of terrorist events. Terrorist events can trigger large abnormal movement in both equity prices and volume traded. These price and volume effects are influenced by industry effects. Terrorism has a differential impact on stock markets and industry portfolios within stock markets. The detailed analysis presented in this thesis can be used to exploit that industry effect and can be employed to guide diversification strategies that could minimize terrorist risk through industry diversification.

The thesis has also evaluated alternative event study methods and produced a critical analysis of event study methodology. It shows clearly that methodological choices can and do significantly influence results. The thesis contributes to eliminating some uncertainty about the markets response to terrorist events, and identifies opportunities for reducing terrorist risk in stock markets.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Economics, Finance and Marketing
Keyword(s) Capital market
Terrorism Economic aspects
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