Terrorism Induced Cross-Market Transmission of Shocks: A Case Study Using Intraday Data
Stephanos Papadamou () and
Costas Siriopoulos ()
No 66, Economics of Security Working Paper Series from DIW Berlin, German Institute for Economic Research
Terrorist incidents exert a negative, albeit generally short-lived, impact on markets and equity returns. Given the integration of global financial markets, mega-terrorist events also have a high contagion potential with their shock waves being transmitted across countries and markets. This paper investigates the cross-market transmission of the London Stock Exchange's reaction to the terrorist attacks of 2005. It focuses on how this reaction was transmitted to two other major European stock exchanges: Frankfurt and Paris. To this effect, high frequency data are used and multivariate GARCH models are employed. Findings reported herein indicate that the volatility of stock market returns is increased in all three cases.
Keywords: terrorism; capital markets; contagion; multivariate GARCH (search for similar items in EconPapers)
JEL-codes: G1 G15 H56 (search for similar items in EconPapers)
Pages: 22 p.
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