War and Wall Street: The Impact of Military Conflict on Investor Attitudes

David E Kaun

Cambridge Journal of Economics, 1990, vol. 14, issue 4, 439-52

Abstract: Price/earnings ratios (1950-85) for major defence contractors, and a comparable sample of "commercial" firms are utilized as a measure of investor response to the Korean and Vietnam wars. The results are consistent with previous studies. These studies, which are reviewed in the paper, suggest that war, or the threat of war tends to have an immediate and depressing effect on stocks prices. The analysis in this paper shows a continuation of this negative reaction for both defence and commercial firms during the Korean conflict. The reverse occurred during Vietnam, suggestive of earlier views where war in a "distant land," without the direct threat of hostilities at home, was seen as a boon to financial markets. Copyright 1990 by Oxford University Press.

Date: 1990
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