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The effects of recent terrorist attacks on risk and return in commodity markets

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  • Ramiah, Vikash
  • Wallace, Damien
  • Veron, Jose Francisco
  • Reddy, Krishna
  • Elliott, Robert

Abstract

The event study methodology of Brown and Warner (1985) is adopted and augmented to evaluate the effect of the recent terrorist attacks on risk and returns in commodity markets. The methodology is supplemented with various techniques, such as the non-parametric ranking test and kernel regression, to find out if 20 terrorist attacks (including in Paris, Nice, Brussels, Stockholm, Manchester, Jakarta, London and Melbourne) generated abnormal returns. Asset pricing models are fitted with interaction variables while GARCH, TARCH, EGARCH and PARCH models are used to determine changes in systematic risk. Our results show abnormal returns and delayed reactions of up to 120 days in the commodity markets—evidence which defies the efficient market hypothesis. In addition, we identify sector and commodity effects in risk analysis.

Suggested Citation

  • Ramiah, Vikash & Wallace, Damien & Veron, Jose Francisco & Reddy, Krishna & Elliott, Robert, 2019. "The effects of recent terrorist attacks on risk and return in commodity markets," Energy Economics, Elsevier, vol. 77(C), pages 13-22.
    • Handle: RePEc:eee:eneeco:v:77:y:2019:i:c:p:13-22
    DOI: 10.1016/j.eneco.2018.10.025
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    More about this item

    Keywords

    Terrorist attack; Abnormal returns; Systematic risk; Commodity market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G0 - Financial Economics - - General
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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