Impact of terrorism on stock markets across the world and stock returns. An event study of Taj attack in India
| Pages | 793-807 |
| DOI | https://doi.org/10.1108/JFC-09-2018-0093 |
| Date | 02 July 2019 |
| Published date | 02 July 2019 |
| Author | Laila Memdani,Guruprasad Shenoy |
| Subject Matter | Financial risk/company failure,Financial crime |
Impact of terrorism on stock
markets across the world and
stock returns
An event study of Taj attack in India
Laila Memdani and Guruprasad Shenoy
IBS Hyderabad, ICFAI Foundation for Higher Education, Hyderabad, India
Abstract
Purpose –The purpose of this paperis to study the following:short-run and long-run associations between
the terror-affected country’s stock market index and other global countries’equity indices and gold; the
volatility of stock marketindices when one of the countries is affected by a terrorist attack; and the linkages
between terrorismand the returns in the selected stock markets.
Design/methodology/approach –To study the impact of the Taj attack on other global indices, the
authors selected top five countries’stock market indices, namely, FTSE, DJI, NIKKEI, SSEC and DAX.
The short-run and long-run associations are also compared with gold. The authors used the
autoregressive distributed lag model, LM test and bounds test for analyzing the short-run and long-run
impact; ARCH family models to study the volatility impact; and the MAR model to study the impact on
returns.
Findings –The authors found that all the global indices had a short-run association with the terror-
affected country’s benchmark index, i.e. BSE. Gold moved as expected, with it having a short-run
impact on the terror-affected country. All the global indices except DJI have volatility of share price
movement either positively or negatively. As the benchmark of the terror-affected country fell, NIKKEI,
HSI, IXIC, DAX and CAC also fell; that is, it had a positive influence on the terror-affected country’s
index. Post the Mumbai attacks, DJI, NIKKEI, SSEC, DAX, BSE and CAC performed well in
performance measure returns compared with the pre-attack period. Whereas, FTSE and GOLD
performed well in performance measure returns in the pre-attack period compared with the post-attack
period. GOLD proved that it is the best avenue to invest in, as it has only a short-term association with
the terror-affected country’sindex.
Research limitations/implications –The authors studied the short-run and long-run associations
with only fivecountries’benchmark indices.
Practical implications –The authors found that all the global indices had long- and short-run
associations with the terror-affected country’s benchmark index, i.e. BSE. Global indices like DJI,
NIKKEI, SSEC, DAX and FTSE had a short-term association with the affected country’sindex.Gold
moved as expected, with it having a short-run impact on the terror-affected country. All the global
indices except DJI have volatility of share price movement either positively or negatively. As the
benchmark of the terror-affected country fell, NIKKEI, HSI, IXIC, DAX, TSX, BVSP and CAC also fell;
i.e., it had a positive influence on the terror-affected country’s index. Post the Mumbai attacks, DJI,
NIKKEI, SSEC, DAX, BSE and CAC performed well in performance measure returns compared with the
pre-attack period. Whereas, FTSE and GOLD performed well in performance measure returns in the pre-
attack period compared with the post-attack period. GOLD proved that it is the best avenue to invest in,
as it has only a short-term association with the terror-affected country’s index. In all the relationships
were mixed with respect to terror attacks, and GOLD took the lead run out of all the associationsit had
in the 16-year time span from 2000 to 2016.
JEL classification –C22, D53, E44, F65
Event study of
Taj attack in
India
793
Journalof Financial Crime
Vol.26 No. 3, 2019
pp. 793-807
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-09-2018-0093
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
To continue reading
Request your trial