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Terrorism and international stock returns

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  • Narayan, Paresh Kumar
  • Narayan, Seema
  • Phan, Dinh Hoang Bach

Abstract

We develop a terrorism risk factor and show its statistical and economic relevance to stock returns. Using time-series data from 40 stock markets around the world, we show that our terrorism factor has a statistically strong contemporaneous effect on countries’ stock returns and is able to predict returns for approximately 53% of the countries in our sample. Our findings suggest that the source of this predictability is via both the discount rate and cash flow channels. Our results survive a battery of robustness tests, including tests based on multiple proxies for the terrorism factor.

Suggested Citation

  • Narayan, Paresh Kumar & Narayan, Seema & Phan, Dinh Hoang Bach, 2022. "Terrorism and international stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:intfin:v:76:y:2022:i:c:s1042443121001736
    DOI: 10.1016/j.intfin.2021.101467
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    3. Liu, Yiye & Han, Liyan & Wu, You & Yin, Libo, 2022. "Do terrorist attacks matter for currency excess returns?," Finance Research Letters, Elsevier, vol. 49(C).
    4. Liu, Xi & Zhang, Xueyong, 2024. "Geopolitical risk and currency returns," Journal of Banking & Finance, Elsevier, vol. 161(C).

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