FDI, Terrorism and the Availability Heuristic for U.S. Investors before and after 9/11

J. Bos, Michael Frömmel and Martien Lamers

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: We record the existence of an availability heuristic that is reflected in disaster myopia of U.S. investors and exists prior to the attacks of 9/11. We argue that this is fueled by an aggregate experience hypothesis effect, resulting in a pronounced increase in the sensitivity of U.S. stock prices to terrorist attacks on foreign soil. After 9/11, stock prices react proportionally to the size of an attack and the share of FDI stock held in the region by the sector in which firms operate. This effect, non-existent prior to 2002, has become increasingly strong in recent years.

Keywords: Terrorism; Foreign Direct Investment; Availability heuristic; Experience Hypothesis. (search for similar items in EconPapers)
JEL-codes: F14 G14 G15 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2013-09
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Working Paper: FDI, terrorism and the availability heuristic for U.S. investors before and after 9/11 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:13/850

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