Additional Departmental Affiliation
This paper investigates the effects that terrorist attacks and mass shootings had on the U.S. stock market, using high frequency intraday data to identify stock price and variability reactions in the hours after the attack. The impact that terrorist attacks had on price level variability was examined using the generalized autoregressive conditional heteroskedasticity (GARCH) model. The market reaction to domestic versus foreign attacks was examined to measure a potential for contagion across financial markets. The potential for flight-to-safety/quality and capital reallocation in response to terrorist attacks were measured using ordinary least squares (OLS) model, measuring the respective betas of small cap and large cap stocks. The results indicated that domestic attacks cause a large increase in variability and a decrease in price level in the hour after the incident, whereas attacks that occurred in foreign countries had virtually no impact on the U.S. stock market. There is evidence that the price levels recover from the attacks within the same day. There is a significant flight to safety after the attacks occur, with small cap stocks severely underperforming compared to large cap stocks. All of these contribute to the possibility of desensitization, suggesting that the market response to terrorist attacks have diminished over the past decade.
Advisor(s) or Committee Chair
Alex Lebedinsky, Brian Strow, Dennis Wilson
Business Analytics | Economics | Finance | Finance and Financial Management
Scanlon, Kyla, "Effects of Terrorism on the U.S. Stock Market: Evidence from High Frequency Data" (2019). Honors College Capstone Experience/Thesis Projects. Paper 781.