Do Investors React to Terrorism and Peace in Colombia?

Federico Mejía-Posada, Diana C. Restrepo-Ochoa and Juan E. Isaza

Emerging Markets Finance and Trade, 2022, vol. 58, issue 6, 1550-1565

Abstract: This paper studies the impact of terrorist attacks on the returns and volatility of Colombian stock returns using an event study methodology in a GARCH model framework. It also investigates the impact of the 2016 peace accord between the Colombian government and the FARC, an army of leftist narco-guerrillas, on the same characteristics of the financial market. Results show that the COLCAP index, a market-capitalization weighted index that includes the 25 most liquid stocks listed in the Colombia’s stock exchange, has a significant negative abnormal return of 0.1% 1 day after a bombing attack occurs, that continues to accumulate down to −0.18% 3 days after. Furthermore, events associated with the peace accord, exhibit a significant positive abnormal return of 0.58% on the event date that continues to accumulate up to 1.02% the day after. In addition, cumulative abnormal volatility (CAV) is statistically insignificant both after terrorist attacks and peace-associated events.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:58:y:2022:i:6:p:1550-1565

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DOI: 10.1080/1540496X.2021.1903867

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