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Terrorism, investor sentiment, and stock market reaction: Evidence from the British and the French markets

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  • Arfaoui, Nadia
  • Naoui, Kamel

Abstract

We examine whether and how terrorist attacks influence the British and the French stock markets through investor sentiment. Using a quantile regression approach, our results indicate that terrorist attacks have adverse effects on the British and the French stock market returns under extreme market conditions. In terms of volatility, surprisingly, we find that these exogenous events decrease the volatility of the British (French) stock market under different market conditions (around the median and at the extreme top quantile). We also document a sizeable contribution of investor sentiment in explaining the effects of major terrorist attacks on the two European stock markets.

Suggested Citation

  • Arfaoui, Nadia & Naoui, Kamel, 2022. "Terrorism, investor sentiment, and stock market reaction: Evidence from the British and the French markets," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s154461232100444x
    DOI: 10.1016/j.frl.2021.102462
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    Cited by:

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    2. Irshad Hira & Taib Hasniza Mohd & Hussain Haroon & Hussain Rana Yassir, 2023. "Conventional and Islamic Equity Market Reaction Towards Terrorism: Evidence Based on Target Types, Location and Islamic Calendar Months," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(4), pages 70-116, December.
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    More about this item

    Keywords

    Terrorism; Investor sentiment; Stock market; Quantile regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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