An Empirical Analysis of Terrorism and Stock Market Spillovers: The Case of Spain

This article assesses the spillover effects between terrorist activity and Spanish stock market returns for the period 1993–2017. We construct a daily terror index that reflects the terrorist activity of different types of perpetrators: domestic terrorism (ETA) and international terrorism linked to...

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Bibliographic Details
Authors: Laborda, R., Olmo, J.
Format: article
Status:Versión aceptada para publicación
Publication Date:2021
Country:España
Institution:Universidad de Zaragoza
Repository:Zaguán. Repositorio Digital de la Universidad de Zaragoza
OAI Identifier:oai:zaguan.unizar.es:150951
Online Access:http://zaguan.unizar.es/record/150951
Access Level:Open access
Description
Summary:This article assesses the spillover effects between terrorist activity and Spanish stock market returns for the period 1993–2017. We construct a daily terror index that reflects the terrorist activity of different types of perpetrators: domestic terrorism (ETA) and international terrorism linked to Islamic extremism. Our static analysis shows that connectedness is important, as it explains about half of the forecast error variance; most of it is attributed to shocks from terrorist events on stock market return forecasts. Our dynamic analysis also uncovers an increase in spillover effects between the early period characterised by ETA terrorist attacks and the recent past characterised by Islamic terrorist attacks.

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