The inverse of a terror event? Stock market response to pro-active action
Abstract
Purpose
This paper aims to study and document the effect of counter-terrorism on stock returns. The authors select a sample of pro-active defense operations, performed by the Israeli military and government agencies, with significant media coverage, including leading international channels.
Design/methodology/approach
The authors use the event study methodology to assess the effect of each operation on the Israeli equity market. The theoretical background of this work is the recent behavioral literature on anomalies in the formation of asset pricing and in investors’ decision-making.
Findings
The authors find generally a statistically significant positive equity market reaction, on average, to prominent successful operations. The initial market response is usually negative and then changes according to the type of event, its specific circumstances and expected ramifications.
Originality/value
Unlike the vast prior literature on terror effects, the authors believe that this is the first paper to study the market reaction to prominent counter-terrorism operations.
Keywords
Citation
Afik, Z., Lahav, Y. and Mandelzweig, L. (2016), "The inverse of a terror event? Stock market response to pro-active action", Studies in Economics and Finance, Vol. 33 No. 1, pp. 91-105. https://doi.org/10.1108/SEF-04-2014-0081
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited