Risk, Uncertainty, and the Perceived Threat of Terrorist Attacks: Evidence of Flight-to-Quality

Michael S. Pagano () and T. Shawn Strother ()
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Michael S. Pagano: Villanova University, Villanova School of Business, 800 Lancaster Avenue, Villanova, PA 19085, USA
T. Shawn Strother: Zayed University, College of Business Sciences, Abu Dhabi, United Arab Emirates

Quarterly Journal of Finance (QJF), 2013, vol. 03, issue 02, 1-25

Abstract: Information provided by the US Department of Homeland Security regarding potential terrorist attacks significantly affects US Treasury securities markets. When the government announces heightened terror alert levels, investors' perceptions of risk increase and investors purchase 1-month and 1-year Treasury bills and 3-year, 5-year, 7-year, and 10-year US Treasuries in a "flight-to-quality" episode. Partial anticipation of increased threat level announcements is stronger than the anticipation of announcements regarding the federal funds rate during the 10 days prior to an announcement.

Keywords: Terrorism; Knightian uncertainty; systematic risk; GARCH; flight-to-quality; behavior; US Treasuries (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S2010139213500079

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