Terrorism, country attributes, and the volatility of stock returns

Tourism Stocks in Times of Crises: An Econometric Investigation of Non-macro Factors

“…The specificities of each event were explored with the use of a number of variables, such as geographic location, severity, specific target, type of the attack, perpetrators' affiliation, and postevent media exposure and coverage. The literature (see Aslam & Kang, 2015;Chesney, Reshetarb, & Karamana, 2011;Essaddam & Karagianis, 2014) suggests that the characteristics of each incident influence its overall impact on both stock market returns and volatility. Thus, an enhanced understanding of these parameter estimates would most certainly assist stakeholders in predicting the financial consequences of an incident, as well as instigating recovery initiatives.…”

“…Charles and Darne (2006) argued that the shock, both permanent and temporary, is extensive, whereas Brounrn and Derwall (2010) posited that terrorist attacks produce mildly negative price effects on stock market prices. It is, therefore, prudent to conclude that methodological heterogeneities, the specificities of the actual event, and the target-destination idiosyncrasies, influence the overall impact; a notion that is also supported by Essaddam and Karagianis (2014).…”

“…Overall, research suggests that such incidents cause drastic, but short-term transitory effects on stock markets, especially on the first day, with recovery in most cases occurring within one to two days (Brounrn & Derwall, 2010;Chesney et al, 2011;Drakos, 2010). Kollias, Papadaumou and Stagiannis (2011), by contrasting the stock behavior following the attacks in Madrid (2004) and London (2005), suggested that recovery may be affected by both the type of the attack, and the promptness and adequacy of the country's institutional responses, an argument that is supported by Essaddam and Karagianis (2014), and Aslam and Kang (2015). With regard to volatility, the literature suggests a significant increase for up to 15 days following the incident (Drakos, 2004;Essaddam & Karagianis, 2014), with some suggesting that this effect is larger in emerging markets (Arin et al, 2008).…”

“…Kollias, Papadaumou and Stagiannis (2011), by contrasting the stock behavior following the attacks in Madrid (2004) and London (2005), suggested that recovery may be affected by both the type of the attack, and the promptness and adequacy of the country's institutional responses, an argument that is supported by Essaddam and Karagianis (2014), and Aslam and Kang (2015). With regard to volatility, the literature suggests a significant increase for up to 15 days following the incident (Drakos, 2004;Essaddam & Karagianis, 2014), with some suggesting that this effect is larger in emerging markets (Arin et al, 2008). The event's specific characteristics have surfaced as a vital element of stock market reaction.…”

“…Indicatively, Brounrn and Derwall (2010) suggested that terrorism incidents have a greater economic impact, especially on the day of the event, compared with unanticipated natural catastrophes, whereas Chesney et al (2011) argued that the latter exhibit longer post-event impact due to the delay in measuring their actual catastrophic effects. Moreover, Aslam and Kang (2015) posited that the location, type, intensity (measured by the number of fatalities), and tactics of the attack affect stock market behavior, whereas Essaddam and Karagianis (2014) argued that the geographic location in which the attack occurred influenced its overall impact. Kollias et al (2011), by comparing the attacks in Madrid (2004) and London (2005), suggested that London's market was able to rebound faster due to the fact that the attackers were suicide bombers, so that the imminent security danger ceased to exist.…”