Attention to Israel’s war on Gaza and stock price behavior: evidence from the Tel Aviv market

Walid M.A. Ahmed and Mohamed A.E. Sleem

Journal of Economic Studies, 2024, vol. 52, issue 8, 1519-1539

Abstract: PurposePublic interest in global events has become a robust driver of investor behavior and market dynamics. This paper assesses the potential influence of attention to the 2023 Israel–Palestine war on the Tel Aviv stock market performance. Our investigation includes both the aggregate market and major sectors.Design/methodology/approachLeveraging the Google Trends service, we track search interest for a rich list of 20 terms closely linked to the ongoing conflict. Subsequently, we employ principal component analysis to construct a proxy indicator for war-related attention. To examine the potential influence of this attention on stock price returns and volatility, we adopt an EGARCH-X(p, q) framework, incorporating proxy factors to mitigate potential model under-specification issues.FindingsThe results suggest that increased attention to Israel’s invasion of Gaza is associated with negative returns and heightened volatility across most sectors. Additionally, the finance and technology sectors appear to be the most vulnerable, whereas the industrials and real estate sectors show comparatively lower levels of impact.Practical implicationsGiven the observed negative effects of public attention to geopolitical conflicts on stock price dynamics, investors should consider incorporating geopolitical risk assessments into their investment strategies. Understanding how the Israel–Palestine conflict affects market behavior can help investors and fund managers make more informed decisions, including diversifying their asset portfolios to reduce risk or adjusting their positions in sectors most susceptible to such events.Originality/valueTo our best knowledge, this paper presents the first attempt to leverage the ongoing Israel–Palestine war as a compelling example to assess how public awareness of, and reactions to, interstate conflicts impinge on financial market returns and volatility.

Keywords: Google trends; Israel–Palestine war; Tel Aviv stock market; Principal component analysis; Factor analytic augmentation; EGARCH models (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-08-2024-0512

DOI: 10.1108/JES-08-2024-0512

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