The Effect Of Terror Incidents On The Yield Of Index Markets For Developing And Developed Markets

The proliferation of terror threats in the last decades, and the increasing number of terrorist incidents at different locations around the world, engendered a counter-reaction from the members of the international community. This study examined how terrorist incidents which took place over the last decade affected the capital markets of the targeted countries, and whether the effect was permanent or transitory. Using the Terror Index, terrorist incidents were analyzed in four main tests. The study results point at the following conclusions: 1. There is a correlation between the yield index on the day of the terrorist incident and the two following work days, 2. There is a negative correlation between the severity of the event and the yield indices, 3. On the day of the terror incident, there is no difference in yield indices between large and small countries and between democratic and authoritarian countries, developing countries, however, show a steeper decline than developed countries. 4. In larger and developed countries terror incidents are permanent, while in democratic countries they are transitory.