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European Markets’ Reactions to Exogenous Shocks: A High Frequency Data Analysis of the 2005 London Bombings

Author

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  • Christos Kollias

    (Department of Economics, University of Thessaly, Korai 43, Volos 38333, Greece)

  • Stephanos Papadamou

    (Department of Economics, University of Thessaly, Korai 43, Volos 38333, Greece)

  • Costas Siriopoulos

    (Department of Business Administration, University of Patras, Rio, Patras 26504, Greece)

Abstract

Terrorist incidents exert a negative, albeit usually short-lived, impact on markets and equity returns. Given the integration of global financial markets, mega-terrorist events also have a high contagion potential with their shock waves being transmitted across countries and markets. This paper investigates the cross-market transmission of the London Stock Exchange’s reaction to the terrorist attacks of 2005. It focuses on how this reaction was transmitted to two other major European stock exchanges: Frankfurt and Paris. To this effect, high frequency intraday data are used and multivariate Genralised Autorgressive Conditional Heteroskedasticity (GARCH) models are employed. This type of data help reveal a more accurate picture of markets’ reaction to exogenous shocks, such as a terrorist attack, and thus allow more reliable inferences. Findings reported herein indicate that the volatility of stock market returns is increased in all cases examined.

Suggested Citation

  • Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2013. "European Markets’ Reactions to Exogenous Shocks: A High Frequency Data Analysis of the 2005 London Bombings," IJFS, MDPI, vol. 1(4), pages 1-14, November.
    • Handle: RePEc:gam:jijfss:v:1:y:2013:i:4:p:154-167:d:30524
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    References listed on IDEAS

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