Terrorist attacks do not harm financial markets, global study suggests

Terrorist attacks do not harm financial markets, global study suggests
Research news

Monday 13 August 2018

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Terrorist attacks do not harm financial markets, according to a worldwide study published in the Global Finance Journal.

The ‘surprise’ findings of the Coventry University research are contrary to common belief that terrorist incidents have a negative impact on stock markets and foreign exchanges as anxious investors start selling their assets after an attack causing an immediate economic downturn.

Instead, the academics’ extensive mathematical analysis suggests that terrorist attacks have almost no impact on stock markets and only marginal effects on foreign exchange markets.

The researchers analysed data from 10,576 individual attacks and 141,665 non-attack days and the impact across 72 stock and foreign exchange markets in 36 countries from 1996 to 2015.

It’s the most comprehensive study of the impact of terrorism on world financial markets so far.

The research found that:

  • the stock market or value of local currency does not decrease, nor their volatility increase after attacks. Even the largest 10% of attacks in terms of casualty numbers still did not adversely affect the markets;
  • market returns do not differ statistically between attack days and non-attack days;
  • the number of fatalities slightly raises the likelihood of adverse impact, while the number of wounded and the magnitude of recent attacks slightly decreases it.
  • The impact of an attack is stronger when the market is performing extremely well or poorly.

The researchers said that previous studies which have found an impact had only focussed on a limited number of terrorist events, such as the 9/11 attacks in New York, the Madrid bombings in 2004, the 7/7 London bombings in 2005 and Paris attacks in 2015.

The information for the Coventry University study was gathered from the World Bank, Bank of International Settlements and the Global Terrorism Database, the most extensive dataset of terrorism attacks.

The study was the idea of Coventry University finance lecturer Dr Mohammad Newaz, who wanted to understand more about how financial markets and investors reacted to attacks, following terrorist incidents in his home country of Bangladesh and its neighbouring countries of India and Pakistan.

Lead researcher Dr Jin Suk Park, a senior lecturer in finance in Coventry University’s Centre for Financial and Corporate Integrity, said:

There has always been a common belief that terrorist attacks can lower prices while creating uncertainty about the future and consequently increasing market volatility – but our comprehensive study shows this is not the case.

We were surprised we could not find the expected negative impact at all, unlike most of the previous studies. We believe this is because we tested a large number of individual attacks, the most comprehensive so far, and then compared them with non-attack days, instead of just focusing on the limited number of large attacks.

The implication for investors is that the financial markets are resilient to terrorist attacks. This resilience could be because the markets know or have already experienced that the impact of terrorist attacks are temporary, so they may never respond at all. It is different from natural disasters, wars and coups that may have long-lasting effect on the economy and the society.


For further press information, please contact Alison Martin, press officer, Coventry University, on 02477659752 or email alison.martin@coventry.ac.uk.