Financial Markets and Terrorism: The Perspective of the Two Sides of the Conflict

Journal of Business Administration Research, Vol. 1, 18-29, 2012

12 Pages Posted: 25 Nov 2013

See all articles by Rafi (Rafael) Eldor

Rafi (Rafael) Eldor

Interdisciplinary Center (IDC) Herzliya - Arison School of Business

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management; Government of the State of Israel - Israel Securities Authority

Yoram Kroll

Ono Academic College Israel

Sharbel Shoukair

Ono Academic College

Date Written: July 26, 2012

Abstract

This paper uses a unique data set and advanced econometric methods to examine the effect of terrorism on financial markets of both sides of the barricade in the Israeli-Palestinian conflict. The main finding are: (1) Real economies on both sides suffered significantly during the intifada period; (2) On the average share prices on the Israeli side declined significantly due to terror attack by 0.43% where the decline on the other side (probably due to fear of retaliation) was much less and insignificant; (3) There is a bi-directional causality effects of returns in the two markets and both markets are affected by the US market; (4) The more fatal the terror attack is, the greater is the negative effect in the two markets. In the more severe terror attack event (i.e. more people were killed and injured or if it was suicide attack), share prices in the Israeli market declined significantly by 0.63% compared to a decline of 0.16% in less severe attacks. The same pattern, but less significant is revealed on the Palestinian side. In the more severe terror attack, share prices declined significantly by 0.21% compared with 0.07% in less severe attacks.

Keywords: Terror attack, Terrorism, Stock markets

JEL Classification: G10; G14

Suggested Citation

Eldor, Rafi (Rafael) and Hauser, Shmuel and Kroll, Yoram and Shoukair, Sharbel, Financial Markets and Terrorism: The Perspective of the Two Sides of the Conflict (July 26, 2012). Journal of Business Administration Research, Vol. 1, 18-29, 2012, Available at SSRN: https://ssrn.com/abstract=2359314

Rafi (Rafael) Eldor (Contact Author)

Interdisciplinary Center (IDC) Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-952-7234 (Phone)
972-9-956-3616 (Fax)

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
+972 2 651 3939 (Phone)
+972 7 6472896 (Fax)

Government of the State of Israel - Israel Securities Authority

22 Kanfei Nesharim Street
Jerusalem 95464
Israel

Yoram Kroll

Ono Academic College Israel ( email )

Tzal St. 104
Jerusalem
Israel
972-505718153 (Phone)
972-9-9523024 (Fax)

Sharbel Shoukair

Ono Academic College ( email )

Tzahal Street 104
Kiryat Ono, 55000
Israel

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