Abstract
The objective of this paper is to examine whether terror attacks that took place in the Eurozone in the 21st century had a significant effect on the price of the Euro. Its novelty is twofold: it is the first study that assesses the impact of such events on the price of the Euro and employs a relatively large number of these events. The event-study methodology is used to deduce whether, after a terror event, the value of the Euro declines vs. other major currencies. We found that it does not, since following such an event, the decline was seldom over 0.5%. We also found, however, evidence of some diversion to safe-haven currencies, such as the Swiss Franc. Regression analysis revealed that factors such as the ‘number of attacks’, the ‘type of target’ and the ‘type of attack’, but not the number of casualties, affected the price of the Euro.
Highlights
There is little doubt that in the course of the 21st century so far, terrorism has emerged as an important international security issue
(2) Do the effects of such attacks on the common currency differ between the first and second decades of the 21st century? (3) are there any specific attributes of terror attacks that may have more profound effects on the value of the common currency than others? By providing answers to the above questions, this study aims to contribute towards the broadening of the literature related to the effects of terror attacks on the Forex market, which, in contrast to the literature related to stock markets (e.g., Chen and Siems 2004; Brounen and Derwall 2010; Markoulis and Katsikides 2018; Papakyriakou et al 2019), is rather scarce
The standard deviation of the cumulative abnormal returns (CAR) of the Euro across events appear to be at similar levels for the Dollar and the for all event windows; it is slightly higher in the case of the Yen and quite higher in the case of the Franc, especially in the 3, 4, and 5-day event windows
Summary
There is little doubt that in the course of the 21st century so far, terrorism has emerged as an important international security issue. From a European perspective, in the last couple of decades, a number of terror attacks have targeted several European countries; well-known examples are the attacks in France (Paris in 2015 and Nice in 2016), Brussels (2016), Berlin (2016), and Barcelona (2017), among several others. The probability that an individual becomes a victim of such an attack is very low, by nature such events can change the perceptions of people, businesses and nations regarding their security, create uncertainty, reduce confidence, and breed populism and mistrust. The large-scale terror attacks that occurred between. The impact of the aforementioned events could potentially lead to lower levels of savings, investment, trade, and eventually economic growth, affecting the currency of the country or region that was attacked. In the case of the EU, a study by the European Parliamentary Research Service (Ballegooij and Bakowski 2018) documents that, between 2004 and 2016, terrorism has cost the EU about EUR 5.6 billion in lost lives, injuries, and damage to infrastructure and around EUR 185 billion in lost GDP (EUR 88 billion of which occurred between 2013–2016)
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