Liquidity Challenges in Non-US Energy Stocks: Assessing the Impact of Terrorism and Geopolitical Risks

Lee Kersting, Jang-Chul Kim and Qing Su

The Energy Journal, 2025, vol. 46, issue 3, 195-215

Abstract: This paper examines how terrorism and geopolitical risk impact the liquidity of non-U.S. energy stocks listed on the New York Stock Exchange (NYSE). We find that countries with higher terrorism risk have wider bid-ask spreads, smaller market depth, and poorer market quality, thus suggesting lower liquidity. We also find that higher terrorism risk leads to increased information-based trading. In addition, the effect of terrorism risk on liquidity is not uniform across the energy sector. Specifically, we find the Oil and Gas Extraction and Utility sectors exhibit lower liquidity in countries with higher terrorism risk. However, this effect is opposite for Supporting Activities for Mining, Quarrying, and Oil and Gas Extraction sector. Additionally, we investigate how the Crimean crisis affects the liquidity of non-U.S. energy stocks and find that the crisis results in lower liquidity and higher information-based trading for these stocks. JEL Classification: G14, G38, Q43

Keywords: terrorism; bid-ask spreads; geopolitical risk; liquidity; information-based trading; energy stocks (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:46:y:2025:i:3:p:195-215

DOI: 10.1177/01956574241306338

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