The impact of terrorist attacks on equity markets

Abstract

This project puts under the microscope the impact of terrorist attacks on equity the markets. In order to visualize clearly the effect of terrorism, the schemes of this work discuss two main approaches: the event study methodology and the GARCH model. The data sample is an extract of daily data prices for two years extending from the beginning of 2015 till the end of 2016 and related to major stocks of 4 countries, namely: Germany, France, Belgium, and Turkey. The event study methodology shows that there is no impact of terrorist attacks on the stock return. However, in the GARCH model, a significant impact of terrorist attacks in Turkey is observed on the returns and the volatility while the attacks are impacting only the volatility in Germany, France and Belgium. The findings are highlighting the difference in the market structure between the chosen countries. Our results should have some important implications for efficient market hypothesis, equity markets predictability and portfolio management.