The influence of terrorism risk on stock market integration: Evidence from eight OECD countries

Seema Narayan (), Thai-Ha Le and S. Sriananthakumar

International Review of Financial Analysis, 2018, vol. 58, issue C, 247-259

Abstract: This study investigates the implications of terrorism activities and fear on the dynamic conditional correlations (DCC) between eight OECD stock markets over time (2001–2014). We begin with eight portfolios, each comprising of eight OECD MSCIs. For each portfolio, we calculate time varying DCCs between one OECD MSCI (of a domestic country) and seven other OECD MSCI (foreign country). Next we examine the reaction of each of the eight sets of DCCs to domestic and foreign terrorism risks. Our findings suggest that the DCCs between France and other seven OECD countries are not affected by terrorism risks over time. The flight-to-safety effects of foreign terrorism or a fall in the DCCs due to foreign terrorism risks are found for the other seven cases. Domestic terrorism is found to have contagion effects for the case of Australia, UK, Germany, Turkey and flight-to-safety effects for the case of the US and Canada. Our study finds that the effect of terrorism depends on expansionary and contractionary phases of the domestic business cycles, particularly in the case of Australia, UK and the US. These results are derived after controlling for other determinants of stock market integration, such as market characteristics and macroeconomic and financial risk factors.

Keywords: Domestic terrorism; Foreign terrorism; Stock market integration; DCC; Business cycles; OECD (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521918302011
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:58:y:2018:i:c:p:247-259

DOI: 10.1016/j.irfa.2018.03.011

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().